What is a credit note?
A credit note (also called a credit memo) is a document a seller issues to reduce or cancel an amount on an invoice that has already been sent. Instead of editing or deleting the original invoice – which breaks your numbering and audit trail – you issue a credit note that references it. The customer then either receives a refund or deducts the credit from their next payment.
When to issue a credit note
- The customer returned goods or cancelled part of an order
- You overcharged – wrong price, quantity or tax rate on the invoice
- You agreed a discount or goodwill credit after invoicing
- The service was not delivered in full
- The invoice was sent to the wrong customer and needs to be cancelled entirely
What to include
- The words "Credit Note" at the top
- A unique credit note number in its own sequence (for example CN-001)
- The date of the credit note and the original invoice number and date
- The items or amounts being credited, with quantities and prices
- Tax on the credited amount, if the original invoice charged sales tax, VAT or GST
- The reason for the credit and how it will be settled (refund or credit against future invoices)
Put the original invoice number in the "Reason for credit" box – the generator pre-fills a sentence you can edit – and use the "Original invoice date" field for its date.
Credit note vs refund vs debit note
| Document | Who issues it | Effect |
|---|---|---|
| Credit note | Seller | Reduces what the customer owes |
| Refund | Seller | Money actually returned; often follows a credit note |
| Debit note | Buyer (or seller, for extra charges) | Requests a credit, or adds an amount owed |
Credit notes and tax
In VAT and GST countries a credit note usually has to show the tax being reversed and reference the original invoice so both sides can adjust their returns. In the US, a credit memo simply reduces the sale and any sales tax you collected. Rules differ by country and state, so check with your accountant if you are registered for sales tax. For new invoices, use our invoice generator; to confirm money received, use the receipt maker.
Frequently asked questions
Can I just edit or delete the original invoice instead?
It is better not to. Once an invoice has been sent, editing or deleting it breaks your numbering and audit trail. Issue a credit note that references it, then issue a new correct invoice if needed.
Should a credit note show negative amounts?
Either convention is common. Most credit notes show positive amounts under a "Credit Note" heading, which this generator uses; the title makes clear the amounts are credited, not charged.
Does a credit note need its own numbering?
Yes. Use a separate sequential series such as CN-001, CN-002 so credit notes are easy to find and never collide with invoice numbers. See our guide to numbering invoices.
Is a credit note the same as a refund?
No. A credit note records that the customer owes less. A refund is the actual payment back to them. You can settle a credit note by refunding the money or by deducting it from the next invoice.
