When do I need to use a credit note?
Credits represent the money that you owe your customer, and this can be tracked in the form of a credit note until it is paid off.
The most common scenario where you might need a credit note is when certain goods that you supply are returned by the customer. This makes the whole transaction defunct, and any money you were paid has to be returned. Another scenario that occurs often is when the customer pays you in advance, but the final settlement comes out much lower than the estimated sum, requiring you to return a portion of the money you were paid.
In short, you owe the customer some amount of money. However, if the customer is a regular one, you can simply just track this debt and pay it off the next time you do business with him. Just raise a credit note to represent the money that you owe, and apply it to the next invoice you send that customer.