A credit note - called a credit memo in the US - reduces or cancels an amount a customer owes on an invoice you already issued. You send one when you overcharged, when goods are returned, when you agree a post-sale discount, or when you need to correct a mistake on an invoice. It references the original invoice so both sides’ books stay matched.
When to issue a credit note
- You invoiced the wrong amount, quantity or tax rate
- The customer returned goods or cancelled part of an order
- You agreed a discount, rebate or goodwill adjustment after invoicing
- A duplicate invoice was sent and needs to be reversed
What to put on a credit note
- Your business details and tax ID, exactly as on the original invoice
- The word “Credit Note” (or “Credit Memo” in the US), a unique number and the date
- The original invoice number it relates to
- The lines being credited, with the same tax treatment as the invoice
- The total credit - and whether it is refunded or applied to a future invoice
Country notes this tool handles
- United States - the usual term is credit memo; sales tax charged on the original invoice is reversed on the same lines.
- United Kingdom - a VAT credit note reverses the VAT at the rate originally charged and should reference the original invoice; keep it for your VAT records.
- Australia - a credit note that adjusts GST is sometimes called an adjustment note; it reverses the 10% GST applied on the original tax invoice.
- Canada - GST/HST (and PST/QST) charged on the original invoice is credited back at the province’s rate.
A credit note never increases what the customer owes - to charge more, issue a new invoice. Confirm how VAT/GST adjustments should be recorded with your accountant.
How to create a free credit note
1Choose your country and enter your business details
2Enter the customer and the original invoice number it credits
3List the lines being credited - tax is reversed automatically
4Download the PDF, or start it from the matching invoice in one click