Credit Notes

A credit note is a document that a vendor issues their customers after a sale, when the original invoice amount needs to be reduced. This usually happens when the customers return goods or when the vendor agrees to adjust the invoice value.

Credit notes helps businesses correct sales records, and ensure that the financial records are up to date. It allows both you and your customer to track changes to the original transaction in a transparent way. They support day-to-day operations such as returns, refunds, pricing corrections, and customer settlements.

Understanding Credit Notes

You can create a credit note when your customer cannot fully accept the goods or services you delivered. This can happen for may reasons, such as damaged goods, incorrect items, quality issues, excess quantities, or pricing mistakes on the original invoice.

The credit note captures the value of the returned goods or the approved adjustment, and is associated with the original invoice. Instead of cancelling or updating the invoice’s amount, you can issue a credit note to reduce the amount your customer owes you. If your customer has already made the payment, you can apply the excess amount as credits to the customer’s future transactions, or issue a refund for the same.