What is on the credit note template
- Credit note number
- Sequential, from its own series (CN-001, CN-002) so credits are never confused with invoices. Many accounting systems also accept the invoice number with a suffix (INV-1187-CN).
- Original invoice reference
- The invoice number and date the credit relates to. A credit note that references nothing cannot be matched by the customer's accounts payable department and gets lost.
- Line items and reason
- Describe what is being credited the way it appeared on the invoice, and give a short reason: returned, damaged, price error, not delivered, discount agreed, overcharged tax. The reason is what the auditor or the bookkeeper will look for.
- Tax
- Credit the tax at the rate charged on the original invoice. In VAT and GST countries a credit note must show the tax adjustment so both parties can correct their returns; in the US it reverses the sales tax collected.
- Total credit
- The amount by which the customer's balance is reduced. Shown as a positive number on a document headed Credit Note; in your ledger it posts as a negative against the invoice.
- Settlement
- How the customer gets the money: a refund (say when and by what method), an offset against the open invoice (say what remains due), or a credit on account for future purchases. Tick one and fill the line.
Credit note vs refund vs cancelled invoice
Once an invoice has been issued it should not be edited or deleted; the credit note is how it gets corrected. If the whole invoice was wrong, issue a credit note for the full amount and then a new, correct invoice. If part of it was wrong, credit only that part. A refund is the cash movement that may follow a credit note; the credit note is the paperwork, the refund is the payment. When a customer has not paid yet, no refund happens: the credit reduces what they owe, and the with-statement version shows the result.
A credit note is a legal document in most tax systems. In the UK, EU, Canada, Australia and India a credit note that adjusts VAT or GST must carry the same identifying details as an invoice (supplier and customer details, tax number, date, sequential number, reference to the original invoice and the tax adjustment). The templates here include those fields.
How to issue one
- Find the original invoice. Copy its number, date and the customer's details exactly.
- List what is being credited, with the same descriptions and unit prices as the invoice, and a reason per line.
- Apply tax at the original rate. The Excel version calculates it from the rate you enter.
- Choose how the credit is settled, and fill the refund or remaining-balance line.
- Number it from your credit note series, sign it, send it to the same contact who received the invoice, and record it against the invoice in your books.
- If a refund is due, make it within the time you promised and note the reference on your copy.
When to use each version
- Standard: pricing errors, services not delivered, agreed discounts, goodwill credits, any B2B correction.
- Returned goods: physical returns where you need the RMA, condition on receipt, and a restocking fee or shipping refund.
- With statement: when the customer has partly paid, or has several invoices open, and needs to see the balance after the credit.
Mistakes to avoid
- Editing the original invoice instead of issuing a credit note, which breaks the audit trail and, in VAT systems, is not permitted.
- Leaving out the tax line. The customer cannot correct their input tax without it.
- Issuing a credit note without saying how it will be settled; the customer then takes it as a refund while you treat it as account credit.
- Numbering credit notes in the invoice sequence. Keep a separate series.
- Crediting a different unit price from the one invoiced without explaining why.
Editing the Word and Excel versions
In Excel, line credits, subtotal, tax and total credit are formulas; the returns version subtracts the restocking fee and adds shipping before tax, and the statement version totals charges and credits and shows the resulting balance. Change the tax label to VAT, GST or HST as needed. The Word files are tables with the same layout for anyone who prefers to type amounts. Pair with the invoice template for the original document and the receipt template when a refund is paid in cash.
Questions
What is the difference between a credit note and a credit memo?
None. "Credit memo" or "credit memorandum" is the usual US term, "credit note" the usual term in the UK, Canada, Australia and India. Accounting software uses both.
Does a credit note have to be a negative number?
The document is headed Credit Note and shows positive amounts; the heading tells the reader it reduces the balance. In your ledger it is posted as a negative against sales and receivables. Some businesses print amounts with a minus sign or in brackets; either is accepted.
Can I issue a credit note for an invoice that has been paid?
Yes. Then the credit is settled by a refund or held on account, and the settlement section says which. The credit note is still needed so the sale and tax are reduced in both parties' books.
Do I have to refund the money?
Not necessarily. If the customer agrees, the credit can be held against future invoices. For consumer returns, your refund policy or consumer law may require a refund to the original payment method; the returns version has a line for it.
Should the credit note include tax?
Yes, at the rate charged on the original invoice. Credit the tax on the goods or services credited only; if a restocking fee is kept, tax is credited on the net amount, which is how the returns version calculates it.
