A credit note is a document you send to a client to reduce or cancel the amount owed on an invoice. It is the correct way to correct an invoicing error, apply a refund, or cancel work that will not be completed — rather than simply deleting the original invoice.
When to issue a credit note
- You invoiced for the wrong amount
- You overcharged by mistake
- A client is entitled to a refund or partial refund
- You agreed to cancel or reduce the charge for work not completed
- A client returned a product or cancelled a service
- You need to correct the VAT on a previous invoice
What a credit note should include
- The words "Credit Note" clearly at the top
- A unique credit note number
- The date it was issued
- Reference to the original invoice number being corrected
- Your business details and the client's details
- A description of what is being credited and why
- The amount being credited (and VAT if applicable)
How credit notes affect payment
If the original invoice has already been paid, the credit note represents money you owe the client — you would issue a refund. If the invoice has not been paid, the client simply pays the lower amount (original invoice minus the credit note). Always confirm with the client how the credit will be applied.
Never delete or edit a sent invoice to correct an error. Always issue a credit note for the incorrect amount and, if needed, a new invoice for the correct amount. This keeps your audit trail intact.
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