What is a credit note?
A credit note (sometimes called a credit memo) is a document you send a customer to reduce or cancel an amount you've already invoiced. It's the proper way to correct an invoice: instead of deleting or editing the original, you issue a credit note that records the change, so your accounts and tax records stay accurate.
When to issue a credit note
- A customer returns goods or cancels part of an order
- You overcharged, or invoiced the wrong price or quantity
- You agree a discount or refund after invoicing
- An invoice was sent by mistake and needs to be cancelled
- Goods arrived damaged or a service wasn't delivered as agreed
How to create a credit note in 4 steps
- Add your details and the customer's. Use the same details as on the original invoice.
- Reference the original invoice. In the notes, write which invoice the credit is for, for example "Credit for invoice INV-0005".
- List what you're crediting. Add the items, quantities and prices being credited, with the same VAT or GST rate as the original invoice.
- Download or send. Save it as a PDF or share a link with your customer, and keep a copy for your records.
What to include on a credit note
- The words "Credit Note" and a unique number, such as CN-0001
- The date it's issued
- Your business details and your customer's details
- The number of the original invoice being credited
- A description of each item being credited, with quantities and prices
- The tax being credited and the total credit amount
- Your VAT or GST number, if you're registered
Tax rules for credit notes vary by country, so check with your tax authority or accountant if you're unsure.
Credit note, refund or debit note?
A credit note reduces what a customer owes you; you might then pay the money back as a refund or let them use it against a future invoice. A refund is the actual repayment. A debit note is the opposite of a credit note: a request to increase the amount owed. Need to bill a customer instead? Use the free invoice generator.
Frequently asked questions
Is the credit note generator free?
Yes. You can create credit notes for free, with no account, no subscription and no watermark.
Does a credit note cancel an invoice?
It cancels all or part of an invoice. Issue a credit note for the full amount to cancel an invoice completely, or for part of it to reduce what the customer owes.
Should a credit note include VAT or GST?
If the original invoice included tax, the credit note normally credits the same tax rate on the amount being credited. InvoPanda lets you set the rate per line.
Do credit notes have their own numbers?
Yes. Credit notes should have their own sequence, separate from invoices. InvoPanda numbers them CN-0001, CN-0002 and so on automatically.
How do I link a credit note to the original invoice?
Write the original invoice number in the notes, for example "Credit for invoice INV-0005", so you and your customer can match them up.