Debitoor Dictionary

Accounting terms explained in a simple way

Over 150 Articles for Founders and Entrepreneurs

  1. Accounts payable
  2. Delivery note
  3. Invoice
  4. Packing note
  5. Reminder letter
  6. Remittance advice
  7. Sales

Credit note - What is a credit note?

A credit note is issued to return funds in the event of an invoice error, incorrect or damaged products, purchase cancellation and more

Create and send a customised, professional credit note to your customer in just a few clicks. Try Debitoor invoice software free for 7 days.

If you return goods to a supplier or if a customer returns goods to you for a full or partial credit, a credit note must be issued so that you or your customer can process this and adjust your accounts accordingly.

A credit note is the recording in your accounts of the funds returned to the customer for a paid invoice. It is also sent to your customer to indicate the cancellation of the payment in the original invoice.

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This amount can also be used to offset future purchases from the same customer, for example, if a new order is placed with necessary corrections.

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When to issue a credit note

There are several situations in which a credit note should be issued. There are two types of credit notes:

  • Those issued for outgoing payments
  • Those issued for incoming payments

In other words, a credit note can be received or issued by your business.

For small business owners, both types are common. When receiving orders from suppliers, it is important to double check the order specifications and the product/service when it is received. If there are mistakes.

If you have paid an invoice before the goods arrive but discover that they must be returned due to damage or because they're unsuitable, a credit note can be issued if you intend to buy more from that supplier as this can be offset against future purchases or you may require a refund of your payment.

Alternatively, you may find yourself issuing a credit note to a customer for similar reasons.

Credit note example

Company X purchases £300 of product from Company Y. Company X contacts Y to say that there is an error on the invoice so the order cannot be completed.

Company Y issues a credit note on the original invoice and sends it to X, cancelling the invoice and recording the amount stated in the positive in accounts payable. Company X can then use the amount stated in the credit note towards future orders or request a refund.

Credit Notes in Debitoor

In Debitoor you can raise a credit note based on the original invoice. Use your customised template to send a professional credit note that is then automatically registered in your system.