What Is a Credit Note?
The document that takes money back off an invoice you have already sent
When to issue a credit note
Issue one when you need to reduce what a customer owes on an invoice you have already sent.
- A billing error, such as the wrong quantity or price
- Goods returned, or work you have agreed not to charge for
- A discount agreed after the invoice went out
- An order cancelled in whole or in part after invoicing
What a credit note shows
A credit note carries much the same details as an invoice, pointing back to the invoice it adjusts.
- The words "Credit note" and its own unique number, such as CN-0007, in a separate sequence from your invoices
- The date it was issued
- The number of the invoice it relates to
- Your details and the customer's
- What is being credited and why
- The amount credited and any tax credited
A worked example
Invoice INV-0042 was for 1,000.00 plus 200.00 tax, a total of 1,200.00. The client returns half of the order.
Credit note CN-0007 credits 500.00 plus 100.00 tax, a total of 600.00. The balance still due on INV-0042 is 600.00.
How tax on a credit note is treated differs by country, so check the official guidance that applies to you.
Credit note or refund?
A credit note adjusts the invoice; a refund pays money back. If the customer has not paid yet, a credit note simply lowers the balance. If they have paid, you can refund the amount or leave it as credit against a future invoice.
Why not just delete the invoice?
Once an invoice has been sent, deleting it leaves a gap in your numbering and a customer holding a document you have no record of. A credit note keeps the history intact and shows exactly what changed.
Frequently Asked Questions
What is a credit note?
A document that reduces or cancels the amount a customer owes on an earlier invoice. It refers to the original invoice and has its own number.
Is a credit note the same as a refund?
No. A credit note adjusts the invoice. A refund returns money the customer has already paid. You can issue a credit note and then refund it, or leave it as credit against a future invoice.
Does a credit note need its own number?
Yes, it should have a unique number, normally in a separate sequence from your invoices, such as CN-0001. It should also show the number of the invoice it relates to.
Can I issue a credit note for part of an invoice?
Yes. Credit only the items or amount that changed, and the rest of the invoice stands.
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