What is a Credit Note?
A credit note is a document issued to cancel all or part of an invoice. In other words, it is a negative invoice. It is also called a credit memo.
There are many reasons for issuing a credit note, including, the return of goods, invoiced the wrong customer, a different amount or customer not happy with the products or services provided.
On the credit memo, the supplier will give as many details as possible. It will generally reference the original invoice, describe the goods or services, quantities, prices and state the reason for the issue.
How to Issue a Credit Note
If you have issued an invoice, it is always good practice not to amend or delete it, but to create a credit note. It will mean that the records are still correct, and the customer has the same paperwork.
Depending on the accounting system used will depend on how you issue a credit note. If you are using an accounting package, there may be an option to issue a credit note directly from the invoice. It will mean that some of the details are posted for you, but you may need to make some adjustments. All accounting packages can create credit notes in their system. If you are not sure how to issue them look at the help documents.
Some of the popular accounting packages include Xero, Quickbooks and a free version of Pandle.
Once the document is created you can either leave it as it is until payment is received or allocate it against the invoice. Allocating it against the invoice will reduce the amount of the invoice.
If you are using a manual system, then our free template in Excel is suitable. The template is available for download at the bottom of this page.
Credit Note Example
Below are two examples of credit notes, created using our template. The first sample is to cancel an invoice in full for return of goods. The second is for services of 50.00 as the customer was not happy with the work carried out.
Credit Note Template
Our free credit note template is designed in Excel and free to download using the link at the end of the page.
Follow the instructions below to create your own completed form to email or post to your customer:
- Open the document and create a template by adding your business logo and details.
- Save this as a template to use again.
- Once you have created the template enter the rest of the details, including as much information as possible. It is always good practice to reference the original invoice number and includes the reason for issuing the document.
- Save the credit memo using the document reference number.
Credit Note Accounting Entry
If you are using a double-entry accounting system, after saving the document, the double entries will post automatically to the accounts. The entries are Debit sales and credit accounts receivables. It will reduce the sales figure and increase the accounts receivable.
A Credit Note for an Unpaid Invoice
If you have had an outstanding invoice for a while and know that the customer will not pay it, to clear the account, a credit memo can be issued. Before you issue it ensure that you have gone down every route to try and receive payment. The invoice can also be written off as a bad debt.
Read our guide on debt collection to find the best ways to contact your customer.
To download your free credit note template, you must agree to our licence agreement
By clicking on the link, you agree to the licence agreement.