In short
A credit note cancels all or part of an invoice you already issued. It has its own number, names the original invoice, lists the lines being credited, reverses the tax on them, and gives the total credit. Example below: a $140.00 desktop board returned from a $1,032.55 invoice becomes a $149.80 credit with tax, leaving $882.75 to pay.
Also called a credit memo, and in some places a credit invoice.
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What a credit note is, and what it is not
A credit note is how you correct an invoice the client already holds, or has already paid, without deleting or rewriting it. You issue a new document that points back at the invoice and takes an amount off. The invoice stays in your records exactly as it was sent, and the credit note sits beside it.
That is what separates it from the other ways an amount can change. Use the table to pick the right one. The credit note glossary entry covers the definition in more depth.
| Document | What it does | Money moves? |
|---|---|---|
| Credit note (credit memo) | Reduces what the client owes. Names the invoice and leaves it unchanged. | Not by itself. It is applied to an unpaid balance, held on the account, or followed by a refund. |
| Refund | Returns money the client already paid. Often backed by a credit note that explains it. | Yes, back to the client. |
| Void invoice | Cancels the whole invoice because it was a mistake. It stays in the sequence, marked void. | No. Used when nothing has been paid. |
| Debit note | Increases what is owed. If an invoice was too low, a second invoice for the difference is usually clearer. | No. |
When to issue a credit note
- Goods came back. Returned, damaged on arrival, or short delivery.
- You overcharged. A wrong price, quantity or tax rate on an invoice already sent.
- Work was canceled after you invoiced for it.
- A duplicate invoice went out and the first one stands.
- A price adjustment was agreed after the fact, or you are giving a goodwill credit.
Do not use one to write off a client who will not pay. That is a bad debt, a different entry in your books. If the whole invoice was a mistake and nothing is paid, voiding it is simpler. Rules on how credit notes must be issued and reported vary by country, state and industry, so check local requirements or ask your accountant.
What goes on a credit note
These are the fields on the downloads and on the online credit note generator.
| Field | What to put there |
|---|---|
| Credit note no. | Its own number in its own series, such as CN-0001. Never reuse an invoice number. |
| Date issued | The date you issue the credit. |
| Against invoice | The number of the invoice being credited. |
| Original invoice date and total | So the two documents match, and so you can check the credit is not larger than the invoice. |
| Reason | Overcharge corrected, goods returned, work canceled, duplicate invoice, price adjustment agreed, damaged on arrival, short delivery or goodwill. |
| From and credit to | Your business details and the client the credit goes to, with an email if you want to send it from the page. |
| Lines credited | Description, quantity, unit and unit price for each line coming off, the same way the invoice showed them. |
| Tax reversed | The sales tax rate the invoice charged, so the tax comes off with the price. A settlement discount to reverse is an optional extra. |
| Note, and authorized by | A short note for the client, and the name and title of the person who approved the credit. |
Credit note example with the arithmetic
A fictional furniture supplier sent invoice INV-2042 on June 3, 2026. One of the two desktop boards arrived with a cracked edge and went back. The supplier issues credit note CN-0001 for that board plus the tax on it. For simplicity every line is taxed at 7%; whether delivery is taxable depends on where you are.
INV-2042
| Description | Qty | Unit price | Amount |
|---|---|---|---|
| Standing desk frame | 2 | $320.00 | $640.00 |
| Desktop board | 2 | $140.00 | $280.00 |
| Delivery | 1 | $45.00 | $45.00 |
| Subtotal (640.00 + 280.00 + 45.00) | $965.00 | ||
| Sales tax at 7% (965.00 x 0.07) | $67.55 | ||
| Invoice total (965.00 + 67.55) | $1,032.55 | ||
CN-0001
Against invoice INV-2042 of June 3, 2026
| Reason | Goods returned: one desktop board arrived with a cracked edge. |
|---|
| Description | Qty | Unit price | Amount |
|---|---|---|---|
| Desktop board, returned (INV-2042 line 2) | 1 | $140.00 | $140.00 |
| Subtotal credited | $140.00 | ||
| Sales tax reversed at 7% (140.00 x 0.07) | $9.80 | ||
| Total credit (140.00 + 9.80) | $149.80 | ||
| Balance left if the invoice is unpaid (1,032.55 - 149.80) | $882.75 | ||
INV-2042 is unchanged. If the client had already paid it in full, the $149.80 is owed back to them: refund it, or hold it against their next invoice. The balance due on the statement drops by the same amount.
Word, Excel, PDF or online: which to use
| Option | Good for | Watch out for |
|---|---|---|
| Word (.docx) | A one-off credit where you want to change the layout or wording freely. | You type every total yourself, so check the arithmetic. |
| Excel (.xlsx) | Several credit notes. It calculates the subtotal, tax reversed, total credit and balance left, and flags a credit larger than the invoice. | Plain layout. Set your own print area if you want a polished page. |
| Sending a finished credit note that cannot be edited by accident. | This page does not offer a blank fillable PDF. Fill in the Word, Excel or online version and save it as PDF. | |
| Online credit note generator | Totals and tax worked out for you, a reason list, a warning if the credit is bigger than the invoice, and downloads as PDF, image, CSV or JSON. | Needs a browser. Word is easier if you want a fully custom layout. |
How to fill one in
- Find the invoice being corrected and note its number, date and total.
- Give the credit note the next number in your CN series and today's date.
- List only the lines that were wrong, with the quantities and unit prices the invoice used.
- Reverse the tax at the rate the invoice charged.
- Write the reason in one line and say what happens to the credit: applied to the account, set against the next invoice, or refunded.
- Send it with a reference to the invoice and keep both together. The online version also builds a matching invoice or a receipt when you need the next document.
What goes wrong
- Editing the original invoice instead, so the client holds a document that no longer matches yours.
- Leaving the reason blank. It is the first thing an accounts team asks about.
- Crediting the price but not the tax, so the client is still charged tax on goods they returned.
- Numbering credit notes inside the invoice series, which makes them look like unpaid invoices in reports.
Common questions
What is the difference between a credit note and a credit memo?
Nothing in practice. Credit memo is the usual term in the US and credit note is used in most other places. Both are a document that reduces what a customer owes on an invoice already sent.
Is a credit note the same as a refund?
No. A credit note is the document that reduces what is owed. A refund is money going back to the client. On an unpaid invoice a credit note needs no refund at all. On a paid invoice it usually leads to either a refund or a credit held against the next invoice.
What should a credit note include?
Its own number, the date, the invoice it credits (number, date and total), the reason, the lines being credited with quantity and price, the tax reversed, the total credit, and what happens to the credit. Requirements differ by country, state and industry, so check local rules or ask your accountant.
Do I have to reverse sales tax on a credit note?
Usually the tax that was charged on the credited amount comes off with it, at the same rate the invoice used. How and when that tax is reported depends on your location, so confirm with your accountant or tax authority rather than relying on a template.
Can I use the Word or Excel credit note template for free?
Yes. Both files download with no signup and no watermark, and you can edit them and send them as your own. The Excel file calculates the subtotal, tax, total credit and the balance left on the invoice.
Can a credit note be larger than the invoice?
It almost never should be. A credit larger than the invoice it names usually means a typing error or a missing second invoice. The Excel template flags it in a check cell, and the online credit note generator warns you.