Creating a Credit Note

A credit note is issued to a customer to reduce or reverse an amount they owe. Common reasons include: returns, billing errors, discounts granted after invoicing, or cancellations.

---

When to Use a Credit Note

• A customer returns goods
• You overbilled a customer and need to correct it
• You want to offer a goodwill discount after an invoice was approved
• An invoice needs to be fully cancelled after it's been approved

Important: Never delete an approved invoice. Instead, issue a credit note to reverse it. This keeps your audit trail intact.

---

How to Create a Credit Note

1. Go to Sales → Credit Notes
2. Click New Credit Note
3. Fill in the details
4. Click Save & Approve

---

Credit Note Fields

Field	Description
Customer	The contact the credit is being issued to
Credit Note Number	Auto-incremented, unique
Date	Date the credit note is issued
Reference	Optional — link to original invoice number
Line Items	Items being credited (qty, rate, tax, account)
Notes	Reason for the credit note

---

Applying a Credit Note to an Invoice

After approving a credit note, you can apply it against an outstanding invoice:

1. Open the credit note
2. Click Apply to Invoice
3. Select the invoice to apply it against
4. Enter the amount to apply
5. Confirm

The invoice balance reduces by the applied credit amount.

---

Refunding a Credit Note

If you need to refund cash to the customer instead of applying the credit:

1. Open the credit note
2. Click Refund
3. Enter the refund amount, date, and account
4. Save

This records a payment out from your bank account and clears the credit note.

---

What Happens in the Books

When a credit note is approved:

1. Sales account is debited (income is reversed)
2. Tax accounts are debited (tax is reversed)
3. Accounts Receivable is credited (the customer's balance is reduced)

---

Frequently Asked Questions

Can I partially credit an invoice?
Yes. Create a credit note for the specific line items or amounts you want to credit, not the full invoice total.

What's the difference between a credit note and a refund?
A credit note creates a credit balance for the customer which can be applied to future invoices. A refund means you've physically returned money to the customer (via bank transfer, cash, etc.).

Can I credit a paid invoice?
Yes. If the invoice is already paid and you issue a credit note, you'll need to refund the credit (since there's no outstanding balance to apply it against).

Does a credit note affect VAT/tax returns?
Yes. Approved credit notes reverse the tax entries, reducing your tax liability for the period.