How to cancel an issued invoice
To err is human. There might come a time that you send an invoice to a customer and spot an error too late, or maybe your customer requests a change.
In general, invoices should not be deleted. In the event that they need to be rescinded or amended, a credit note will usually suffice. A credit note allows you to effectively and legally cancel an invoice..
What is a credit note?
If an invoice needs to be cancelled, a credit note works in most situations. A credit note is a legal document used to ‘pay’ the invoice so that it does not become overdue.
Suppose that you have invoiced a customer for £100 and this needs to be cancelled. The credit note that you issue to cancel this should also be for £100. Once you have issued your credit note to your customer, the incorrect invoice should be marked as paid and this will balance the amounts in your accounting.
When you create a credit note, it will also have its own unique number, just like an invoice number. It’s important to keep in mind that an invoice number cannot be reused, even if it has been countered with a credit note.
Example of an invoice cancelled by credit note
Your company invoices a customer as per usual. The invoice number is 0025. But then the customer contacts you to let you know that there is something on invoice 0025 that needs to be changed.
Once the two of you agree on the changes to invoice 0025, you issue a credit note with its own unique number, for example CN-0001. You send that credit note to your customer and it will cancel the amount due on invoice 0025. In this way, the credit note will have its own unique number and the next time you issue an invoice, you should use the next appropriate number for your invoice sequence, in this case 0026.
Does it apply to proforma invoices?
Because proforma invoices are not official invoices (they should always be marked as ‘Proforma’ and do not have an invoice number), it is not necessary to create a credit note to cancel or change a proforma invoice.
Once you convert a proforma to a full invoice, however, it will need to be cancelled or changed by issuing a credit note.
Is it legal to cancel an invoice without paying it?
When you create an invoice and realise that it needs to be cancelled, be aware that there are some legal restrictions involved. Technically, you should never delete an issued invoice but instead use a credit note to cancel the invoice.
No matter whether you use invoicing software or invoice templates, you should never reuse the same invoice number. Good invoicing software will help to prevent this, by automatically assigning the next invoice number in your sequence.
It will also warn you when you attempt to delete an invoice, and instead suggest the option of using a credit note to cancel out the invoice in your accounts.
Useful information: in Debitoor invoicing software, it’s possible to issue a credit note on an invoice that needs to be cancelled in a matter of moments. It takes just a few clicks to ensure that your accounts are balanced and you have followed all legal requirements to cancel your invoice.