Invoice types
Credit note
A credit note (or credit memo) is a document a seller issues to a buyer that reduces or cancels the amount owed on a previously issued invoice.
What a credit note does
A credit note is essentially a negative invoice. It records that the seller owes the buyer a reduction, because of a return, an overcharge, a discount applied after the fact, or a cancelled order, and adjusts the account accordingly.
Rather than deleting or editing an original invoice (which breaks your audit trail), you issue a credit note that references it. This keeps your records accurate and transparent.
When to issue one
Issue a credit note when a client was overbilled, returned goods, received damaged items, or when you agree to a partial refund or goodwill discount after invoicing. The credit can be refunded or applied against a future invoice.
Example: A supplier invoiced a client $1,000 but two items arrived damaged. The supplier issues a credit note for $200 referencing the original invoice, leaving a net $800 owed.
FAQs
Frequently asked questions
What is the difference between a credit note and an invoice?
An invoice increases the amount a buyer owes; a credit note decreases it. A credit note always references the original invoice it is correcting.
Is a credit note a refund?
Not exactly. A credit note records that money is owed back to the buyer. That credit can either be refunded in cash or applied to reduce a future invoice.
Related terms
Invoice
An invoice is a document a seller sends to a buyer that itemizes goods or services provided and requests payment by a stated due date.
Invoice number
An invoice number is a unique identifier assigned to each invoice so it can be tracked, referenced, and reconciled in accounting records.
Commercial invoice
A commercial invoice is a legally binding document used in international trade that declares the contents, value, and parties of a shipment for customs clearance and payment.
Debit note
A debit note is a document used to indicate an adjustment that increases the amount owed on a transaction, for example, an undercharge by a seller or goods a buyer returns to a supplier.
Put it into practice
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