Creating a credit note can be an important part of your invoicing process. Whether you are self-employed or running a business, knowing how to create one correctly is worth the ten minutes it takes to learn.
This is the field-by-field version. For what a credit note is and why it exists, see everything you need to know about credit notes.
Why it is worth getting right
Credit notes help you track your finances accurately, they show a customer that you respond when something is wrong, and they carry legal and tax implications depending on your local regulations. That last point is the reason a credit note is not simply a refund note in an email.
The six steps
1. Customer and company information
Correct names and addresses for both your business and the customer. Same standard as an invoice — because legally it is much the same kind of document.
2. Invoice details
Include the number and date of the original invoice being credited. This is the field that ties the correction to the thing being corrected, and it is the one most often left out.
3. Reason for the credit note
State clearly why it is being issued — a pricing error, a return, or another cause. “Adjustment” tells nobody anything six months later, including you.
4. Amounts and taxes
Indicate the correction and the applicable taxes. The VAT has to be reversed as well as the net amount, or your return will be wrong even though your total looks right.
5. Total amount
Calculate and clearly state the corrected total, so there is no arithmetic left for the customer to do.
6. Send it and explain it
Send the credit note to the customer and communicate the change clearly and transparently. A credit note that arrives without explanation invites the phone call it was supposed to prevent.
Letting the software do it
Invoicing software creates and tracks credit notes efficiently, which reduces errors and saves time — mostly because the reference, the amounts and the VAT reversal are carried over from the original invoice rather than retyped. See create a credit note.