What is a credit note and when should you issue one?
A credit note reduces or cancels an invoice after a return, an error or a discount. Learn when to issue one, what it must contain and how it differs from a refund.
Once an invoice has been sent, you should not edit it or delete it. Your accounts, and often the tax authority, expect every invoice number to stay in the record. When something needs correcting, the right tool is a credit note.
What a credit note is
A credit note (sometimes called a credit memo) is a document that reduces the amount a customer owes on an earlier invoice. It can cancel the invoice completely or only part of it. In your books it works like a negative invoice.
When to issue one
- Returned goods: the customer sends back some or all of the items.
- Damaged or missing items: you agree to reduce the price instead of replacing them.
- Pricing or billing errors: wrong price, wrong quantity, wrong tax rate or wrong customer.
- Discounts after the sale: a goodwill gesture or a volume discount agreed later.
- Cancelled orders that were already invoiced.
What a credit note must contain
- The title "Credit note" and its own number, following its own sequence.
- The date it is issued.
- The number and date of the original invoice.
- The reason for the credit.
- The items, quantities and amounts being credited, with the matching tax.
- The total credited.
Credit note, refund or debit note?
| Document | What it does |
|---|---|
| Credit note | Reduces what the customer owes you |
| Refund | Money actually paid back, recorded on a receipt or payment voucher |
| Debit note | Increases what the customer owes, for example after under-billing |
A credit note does not move money by itself. If the customer had already paid, you either refund the amount or deduct it from their next invoice.
Create a credit note
Reduce or cancel an invoice for returns, errors or price adjustments.
Enter the original invoice number in the "Original invoice" field and the reason for the credit. If the invoice was made with our invoice generator, open it and choose "Convert to", then "Credit note": the items and the reference are filled in for you.