Credit Note

What is a credit note?

A credit note (also called a credit memo) is a document you issue to a client when you need to reduce what they owe. Instead of editing or deleting an original invoice—which creates accounting problems—you issue a credit note that officially cancels or reduces part of the original charge.

It's essentially a negative invoice that offsets all or part of a previous charge.

When to issue a credit note

Common reasons for issuing a credit note include:

• Billing errors — You overcharged or invoiced for the wrong amount
• Returned goods — Client returned materials or products
• Work not completed — Part of the job was cancelled or not performed
• Agreed discounts — Client negotiated a reduction after the invoice was sent
• Damaged or defective items — Products arrived damaged or didn't meet specs
• Goodwill gestures — Resolving a dispute or keeping a client happy

What to include in a credit note

A proper credit note should contain the credit note number, the date issued, your business details, the client's details, a reference to the original invoice number, the items or services being credited, the credit amount, and a brief explanation of why the credit is being issued.

Credit note vs. refund

A credit note reduces the client's balance—they can apply it to future invoices or request a refund. A refund is money returned directly to the client. You might issue a credit note and then process a refund, or let the client use the credit toward future work. Either way, the credit note is the accounting record.