What a credit note is
A credit note is a document a seller issues to reduce or cancel an invoice already sent: for returned goods, an overcharge, a discount agreed afterwards or a cancelled order. It references the original invoice, lists what is being credited, and shows the amount, including any tax being reversed.
The Credit Note Generator produces one, numbered and totalled, as a PDF. Credit Note Generator
Issuing a credit note
- Give it its own number, from a credit note sequence such as CN-0001.
- Reference the original invoice number and date.
- List what is being credited, with quantities and prices.
- Reverse the tax at the same rate as the original invoice.
- State the total credited, and whether it will be refunded or set against future invoices.
- Send it to the customer and record it against the original invoice.
Why not just edit the invoice?
Once an invoice has been sent, it is part of your records and, if you are registered, of your tax returns. Changing or deleting it breaks the sequence and leaves the tax you reported with nothing behind it. A credit note corrects the position and keeps the trail intact, which is what tax authorities expect.
When to issue one
The usual reasons are goods returned or faulty, an overcharge or a pricing error, a discount or rebate agreed after invoicing, and an order cancelled after the invoice went out.
If the whole invoice was wrong, credit it in full and issue a new, correct invoice with a new number. If only part was wrong, credit just that part.
Credit notes and tax
If the original invoice charged VAT or GST, the credit note reverses the tax on the amount credited, at the same rate. That reduces the tax you owe for the period in which you issue it.
In Australia the equivalent document is called an adjustment note. Wherever you are, the original invoice has to be identifiable from the note.
Refund or credit?
A credit note says the customer owes less. Whether that becomes money back or a balance against their next invoice is a separate decision, so state which on the note and there is nothing to argue about later.
Questions people ask next
Is a credit note the same as a refund?
No. The credit note records that the customer owes less; a refund is the money actually paid back. You can issue a credit note without refunding, if the credit is set against a future invoice.
What is a debit note?
Usually a buyer's document asking the seller for a credit, or a seller's document increasing an amount already invoiced. Usage varies by country and industry.
Does a credit note need a due date?
Not as such. Leave it empty, or use it for the date the refund will be paid.