In one line
A document that cancels all or part of an invoice you have already issued.
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 cancelled after invoicing. 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.
Example. Invoice 1041 was $2,450 and included a $300 fitting that was returned, so credit note CN-014 credits $300 against it.
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.
The tools for this
Related terms
- Void invoiceAn invoice cancelled after it was issued, kept in the sequence and marked rather than deleted.
- Invoice numberThe unique reference that identifies one invoice, running in sequence with no repeats.
- Write-offRemoving an unpaid invoice from what you expect to collect, while keeping it in the record.
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.