Sooner or later you will send an invoice that is wrong, or a customer will return something. The correct response is not to delete the invoice. It is to issue a credit note.
What a credit note is
A credit note is a document that reduces or cancels an invoice you have already sent. It has its own number, refers to the original invoice and shows the amount credited. It is the formal way of saying 'we owe you this' or 'you no longer owe this'.
When to use one
Common reasons include:
- An invoice with a mistake in the price, quantity or tax.
- Goods returned or a service not delivered.
- A discount or goodwill gesture agreed after the invoice was sent.
- A cancelled order or project.
- An invoice sent to the wrong client.
Why not just delete the invoice?
Deleting an invoice leaves a gap in your numbering and no explanation for it. Your client may also already have recorded it in their books. A credit note leaves a clear trail: the original, the credit and any replacement. Accountants and tax offices prefer this, and in many places it is the rule.
How to write one
A credit note needs the words Credit Note, its own unique number, the date, your details and the client's, a reference to the original invoice number, a description of what is being credited and the amount, with any tax adjusted. Our Credit Note Generator builds it for you in the same look as your invoices.
Replacement invoices
If the original was wrong, issue the credit note first, then a new correct invoice with the next number in your sequence, and mention that it replaces the earlier one. The client then has a clean pair of documents to file.
Refunds and credit balances
A credit note does not itself send money back. If the client has already paid, you can refund them, or leave the credit to be used against their next invoice. Say which in a line on the credit note, and record the refund when you make it.
Tools for this guide
More tips
- What to Put on an Invoice: A Checklist
- Ten Ways to Get Paid Faster as a Freelancer or Small Business
- Invoice Numbers: How to Number Your Invoices Sensibly
- Quote, Estimate, Pro Forma, Invoice: What Is the Difference?
- Payment Terms Explained: Net 30, Due on Receipt and Everything Between
- How to Chase a Late Payment Without Damaging the Relationship
- Purchase Orders Explained for Small Businesses
- VAT, GST and Sales Tax on Invoices: The Basics
- Hourly, Day Rate or Fixed Price: How to Price Freelance Work
- Keeping Invoice and Receipt Records: What to Keep and for How Long
- Invoicing Clients in Other Countries and Currencies
- Tracking Billable Time So You Never Under-Bill Again
- Your First Invoice: A Calm Guide for New Freelancers
- All tips and guides
These guides are general information to help you get paid and stay organised. They are not legal or tax advice. Rules differ by country and change over time, so check with your tax authority or an adviser.