Example
Invoice 1041 was $2,450 and included a $300 fitting that was returned, so credit note CN-014 credits $300 against it.
Also called a credit memo or a credit invoice.
What it means in practice
A credit note is how you correct an invoice the client already holds, or already paid, without deleting anything. It refers to the original invoice number, states the amount being credited and why, and carries its own number in its own series.
Use one for an overcharge, a return, or work that was canceled after invoicing, and make a credit note that names the original invoice. Editing or deleting the original leaves a gap in the sequence that an accountant will have to ask about.
Covered in full in the guide to invoice numbers.
Where it shows up on the paperwork
A credit note looks like an invoice and behaves like its opposite. It carries its own number in a CN series, names the invoice it credits, and states the amount and the reason.
What goes wrong
- Editing the original invoice instead, which leaves the client holding a document that no longer matches yours.
- Issuing a credit note with no reason on it, which is the first thing an accountant asks about.
- Using a credit note to write off a client who simply will not pay. That is a bad debt, not a correction.
Common questions
What is the difference between a credit note and a refund?
A credit note is the document that reduces what is owed. A refund is money moving back. A credit note on an unpaid invoice needs no refund at all; on a paid one it usually leads to one.
Do credit notes need their own numbers?
Yes, in their own series. Reusing an invoice number or leaving one blank is what turns a tidy set of records into a set of questions.