What Is a Credit Note and When Should You Use One?

A credit note (sometimes called a credit memo) is a document that reduces the amount a customer owes on a previously issued invoice. Think of it as the opposite of an invoice: instead of asking for money, it gives value back.

When to issue a credit note

• You overcharged the customer or made a billing error.
• Goods were returned or a service was cancelled.
• You agreed a discount after the invoice was already sent.
• Items arrived damaged or did not match the order.

Credit note vs refund

A refund returns money to the customer. A credit note reduces what they owe, or leaves a balance they can apply to a future purchase. You can issue a credit note and then refund the balance, but they are not the same thing.

What to include on a credit note

A credit note looks very similar to an invoice. It should reference the original invoice number, list the items being credited, show the credited amount, and carry its own unique credit note number for your records.

Good record-keeping tip: always link a credit note to the invoice it corrects so your accounts reconcile cleanly.

You can generate a professional credit note for free using our credit note template.