What is a credit note?
A credit note (called a credit memo in the US) is a document you send to a client to reduce what they owe you. It points to the original invoice and shows the amount being credited. The client can deduct it from what they pay, use it against a future invoice, or get the money back.
Once an invoice has been sent, you shouldn't edit or delete it — your records, and your client's, would no longer match. A credit note corrects the invoice while keeping both documents on file.
When to use one
- You overcharged — a wrong rate, too many hours or a line billed twice
- The client returned goods or cancelled part of the work
- You agreed a discount after the invoice was sent, for example because of a delay
- You're refunding a payment, fully or in part
- The whole invoice was a mistake — credit it in full, then send a new, correct invoice
How to make a credit note
- Open the invoice in our invoice generator and click Issue credit note. The client, line items and original invoice number carry over. Or fill in this page from scratch.
- Give it its own number. Credit notes have their own numbering, such as CN-0001, CN-0002.
- Enter the original invoice number, so anyone can match the two.
- List what you're crediting. Keep the lines you're crediting and delete the rest, or change the quantity — for example 2 of the 10 hours. Amounts are shown as positive numbers; the title "Credit note" tells the client they're credits.
- Use the same tax rate as the original invoice, so the VAT, GST or sales tax is credited too.
- Explain why in the notes, and say how the credit will be used: refunded, or deducted from the next invoice.
- Download the PDF and send it to your client.
What a credit note should include
- The words Credit note (or credit memo) and a credit note number
- The date it was issued
- The original invoice number and date
- Your details and your client's details, the same as on the invoice
- What is being credited, with quantities and amounts
- Tax on the credited amount, if the invoice included tax
- The total credit and the reason
Credit notes, VAT and your income
If you're registered for VAT or GST, a credit note reduces the tax you owe on the original sale, and many countries set out what it must include. In Thailand, for example, a VAT-registered business issues a credit note (ใบลดหนี้) showing the original tax invoice and the reason. Check your country's rules before you rely on a simple credit note for tax purposes.
For income tax, a credit reduces your income for the year — if you were paid and then refunded part of it, report only what you kept. Our 1099 tax calculator works from the income you actually keep.
Frequently asked questions
What's the difference between a credit note and a refund?
A credit note is the document; a refund is one way of settling it. After you issue a credit note, you either pay the money back or let the client deduct it from what they owe now or next time.
Is a credit memo the same as a credit note?
Yes. "Credit memo" is the usual US term; "credit note" is used in the UK, Europe, Australia and Asia. Change the wording in Word if your client prefers one or the other.
Should the amounts be negative?
Usually not. A credit note shows positive amounts, and the title makes clear they're credits. Some accounting software shows them as negative in reports — that's fine.
Can I credit part of an invoice?
Yes. Keep only the lines you're crediting, or reduce the quantity or rate, so the total matches the amount you're giving back.
Can I cancel an invoice instead of making a credit note?
If the invoice hasn't been sent, just delete it or change it. Once the client has it, issue a credit note for the full amount so both your records stay complete.