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 indicate a return of funds in the event of an invoice error, incorrect or damaged products, purchase cancellation, or otherwise specified circumstance

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 and your customer can process this and adjust your accounts accordingly.

A credit note is a document issued by you that records in your accounts that a particular amount was 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.


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.

It's as simple as a few clicks to create a credit note in Debitoor invoicing software

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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 a 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, the invoice can be cancelled with a credit note and a corrected invoice issued.

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, the amount specified can be offset against future purchases or you may request a refund of your payment.

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

Example credit note

The process of issuing a credit note for an invoice is fairly straightfoward. Typically, credit notes should be sent to the customer for which they are issued, as well as retained by the issuing business.

  • Company X purchases £300 of products from Company Y. Company X contacts Y to inform them 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 accounting

In traditional accounting practices, credit notes would be entered as a credit in the sales book for that particular customer (crediting their account for the specified amount).

In double-entry bookkeeping systems, the credit note would be entered as a debit in revenue, and a credit in accounts receivable. Each credit note shold be recorded and other balances updated (such as stock, in the case of returned products).

Thankfully, online invoicing and accounting software like Debitoor remove the necessity to ensure that each credit note is market down in your books accordingly. A credit note is automatically linked to the invoice for which it is created, has its own unique number, and is reflected in the amount due for the invoice.

Credit Notes in Debitoor

As mentioned above, in Debitoor you can raise a credit note based on the original invoice. Use your customised template to send a professional credit note directly to your customer and see an instant update on the amount due for your invoice, all automatically registered in your system.

An easy credit note template is available in Debitoor invoicing software, either attached to an invoice or stand-alone