What is a credit note?
A credit note — sometimes called a credit memo — is a document that reduces the amount of an invoice you already issued. You send one when money that was billed needs to come back down: the customer returned goods, part of an order was cancelled, or you agreed on a discount after the original invoice went out.
Think of it as a "negative invoice": it references the original invoice and states exactly what changed, rather than replacing the invoice outright.
When do you issue a credit note?
The usual triggers are:
- A return or cancellation. The customer sends goods back, or part of an order (or the whole order) doesn't go ahead after all.
- A price reduction agreed after billing. A discount, rebate, or goodwill adjustment offered once the invoice is already out.
- Correcting an amount. The original invoice charged too much, for a reason other than a simple typo.
Credit note vs. debit note vs. cancelling an invoice
These three get mixed up often, but they solve different problems:
- A credit note lowers the amount on a previous invoice.
- A debit note does the opposite — it raises the amount, for example when you under-billed for something.
- Cancelling (voiding) an invoice is different again: you use it when an invoice should never have existed in the first place — a duplicate, or one issued by mistake — rather than when the underlying sale changed.
What should a credit note include?
A credit note needs to clearly connect back to the invoice it corrects:
- The number of the original invoice it relates to
- Its own sequential number
- What changed and by how much (only the adjustment, not the whole invoice repeated)
- The date it was issued
- Supplier and customer details matching the original invoice
- A short reason for the adjustment (return, discount, cancellation, etc.)
A quick note on tax treatment
If you charged VAT (or a similar sales tax) on the original invoice, a credit note usually needs to adjust that tax too, and many tax authorities set a specific deadline for issuing it and for reporting the adjustment. The exact rules — deadlines, required wording, how it affects your tax return — vary by country, so check your local VAT or sales tax rules, or ask your accountant, before relying on this for a real transaction.
Credit notes in Lucanto
In Lucanto, a credit note is linked to the original invoice automatically, so the numbering and the amounts stay consistent without you doing the math by hand. Credit notes are included in every plan, the free one too; see what's included in each plan on the pricing page.
Related reading: what an advance (proforma) invoice is.
Frequently asked questions
Do I need the customer's agreement to issue a credit note?
Not formally — it is your own accounting record, not a contract. In practice you will usually have already agreed on the return, cancellation, or discount before it gets to paperwork, so the credit note confirms it rather than asking for it.
Can a credit note be for more than the original invoice?
No. A credit note only ever reduces what was already billed. If you need to charge more for the same order, that is a debit note or a new invoice, not a credit note.
Does a credit note need a signature?
Usually not. Like an invoice, it is a business record rather than a contract requiring a countersignature — though a specific business relationship or accounting system may ask for one anyway.
How should I number credit notes?
Give each one its own sequential number, either in its own series or continuing your invoice numbering, depending on how your bookkeeping is set up. What matters most is that every credit note also references the original invoice number it corrects.
What if I already filed taxes for the original invoice?
In most places you do not go back and amend the original filing — you report the adjustment in the period the credit note is issued instead. The exact timing rules vary by country, so confirm with your accountant or local tax authority.