Credit note
A credit note is a document that reduces or cancels an amount a customer owes after an invoice was already issued.
A credit note is the opposite of an invoice: instead of asking for money, it gives money back or wipes out part of a bill. You issue one when something on an invoice needs correcting after the fact, such as a return, an overcharge, or a discount you agreed to later. It keeps your records accurate without deleting the original invoice.
What it means
A credit note records a reduction in what a customer owes you. Rather than editing or erasing an issued invoice, which would break your audit trail, you create a separate document that offsets all or part of it.
The credit can be refunded to the customer, applied against the original invoice, or held against a future purchase. Like invoices, credit notes are dated and numbered so the adjustment is traceable in your accounts and for tax.
When it's used
Credit notes handle the everyday corrections that come up after billing.
- A customer returns goods or cancels part of an order
- An invoice overcharged or contained a pricing error
- You grant a discount or goodwill credit after invoicing
- Damaged or faulty items need to be credited back
Example
You invoiced a client $1,000, but they returned an item worth $150. Instead of changing the paid invoice, you issue a credit note for $150. The client's balance now reflects $850, and you can either refund the difference or apply the credit to their next order.
Frequently asked questions
Why not just edit the original invoice?
Once an invoice is issued, editing or deleting it breaks your audit trail and can cause tax problems. A credit note corrects the amount with a separate, traceable document while leaving the original invoice intact.
Does a credit note mean a refund?
Not always. A credit note reduces what's owed, and you can settle that by refunding cash, offsetting it against the original invoice, or applying it to a future purchase. The credit note records the adjustment; how you settle it is a separate choice.
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