Credit Note

• What is a credit note?
• Credit note sample
• When to issue a credit note
• How to create a credit note
• Does a credit note reduce the VAT/GST amount that a seller has already paid?

• What is a credit note?

  A credit note, as known, is a minus invoice that reduces the total amount to be paid. Also known as a negative invoice, a credit note notifies the client or buyer that they no longer have to pay the original total due amount. The total amount is reduced by the amount of the credit note. In situations where the total amount due is the same as the amount on the credit note, then this would cancel out the entire invoice. On the other hand, the credit note could also be for less than the total invoice amount due.

  When creating a credit note for your customer, there are several important details to be included. Namely, the quantity of the product, type of product, the agreed price for the product or service and the amount reduced from the original agreed price. Essentially, the credit note references the original sent invoice and is a typically straightforward document to create. It may even mention the reason for the reduction in amount to be paid.

  The use of credit notes are a great way to handle any mistakes that are made in invoice creation. They can serve as a way to mend the relationship between seller and buyer in situations where damaged goods were sent or errors were made in pricing. A credit note is typically added to a prior invoice but can also be provided on its own, to be linked to another invoice later.

• Credit note sample

  

• When to issue a credit note

  A credit note is issued when an invoice is already sent, but for some reason, the delivered products or services are not complete or may be damaged. Due to this incomplete delivery or damaged product, the seller agrees to partly reduce the original price and a credit note is therefore sent to the customer.

  If an invoice has already paid, the subtracted amount from the total needs to be returned to the customer in cash, wire bank transfer or any other payment method. Please note that a credit note can only be sent by the seller to the buyer and not vice versa.

  A credit note can also be issued and provided if the customer has been unknowingly charged extra, or if the wrong invoice has been sent. In addition, if the customer or client is not satisfied with the delivered product or service, then a credit note can also be a tool to use to offer a full or partial refund to the customer.

  Another situation in which a credit note can be issued is when an invoice has been sent out to the customer before a discount has been agreed upon. In order to allow the customer to pay the reduced amount, a credit note can be issued for the agreed discounted amount.

  Lastly, another situation where a credit note can be used is when a customer accidentally overpays the seller. This extra cash, in the form of a credit note is applied to the customer’s next purchase. Or it can be transferred back. In this case, it is not a reduction in the amount due. In order to keep accurate records, it is recommended that you record the overpayment when doing your accounting.

• How to create a credit note

  • Method 1: Use our simple invoice software

    • Try It Free
    • When you add invoice, set invoice type to “Credit note”
    • You can copy and convert an invoice into a credit note in just a few clicks
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  • Method 2: Download a free credit note template:

    • PDF

• Does a credit note reduce the VAT/GST amount that a seller has already paid?

  Yes, it does. However, your accountant will have to declare it and the seller will be able to pay less VAT/GST in the following month. Credit notes are recorded in your accounting records to show that a stated amount was given back to a customer.

  Now that you know how credit notes are sent and how they are used, then we recommend that you make and send professional credit notes by using our superior invoice software. It is efficient and will save you time, while increasing your productivity. You will have the ability to send credit notes quickly and smoothly by using our services!