Wednesday, 07 June 2017 13:56

How to Issue a Credit Note

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Credit Notes are essentially a negative invoice used to rectify mistakes or credit amounts raised in your sales invoice. They may be used to credit all or part of an invoice depending on the circumstances and serve as an accounting record for both parties to counter the invoicing error.

Who issues a credit note?

A Credit Note is always issued by the seller to the purchaser. So, as a business, you would receive a credit note from a supplier if there had been an error with an invoice you had received. On the flipside, you would issue a credit note to a customer if there was a mistake with your invoice. So a credit note is always issued by the sender of the invoice, not the recipient.

When would you issue a credit note?

There are a number of different circumstances when a credit note can be issued:

  • If an invoice has been raised in error.
  • If you have overcharged a client.
  • If your client has an issue and you agree a full or partial refund.
  • If the wrong goods have been shipped, or an order has been processed in error.
  • To write off a short payment by a customer (You may choose to write off small underpayments from a good client in certain circumstances).credit note

How is a credit note fulfilled?

A credit note authorises the recipient to claim back the amount of money specified from the sender. If the credit note relates to an invoice that is yet to be paid, then the balance is reduced by the amount of the note. If the balance has already been paid the recipient of the credit note can ask for a cash refund, or the value of the credit can be offset against future purchases.

How do I create a credit note?

A credit note essentially contains the same information as a sales invoice, only instead of requesting payment, it authorises the receiver to claim back the specified sum.

Most accounting software programmes will include an option for generating a credit note, however it is straightforward to make your own using a word processing app or a spreadsheet. These can then be printed off and sent via post or issued digitally by email as you choose.

Essential information to include on a credit note is as follows:

 

  • Your accounting details: This is the information both you and your customer will need for administration and recording purposes, such as:
  • Date of issue
  • Credit Note number
  • Customer reference number
  • Payment terms.
  • Relevant contact details

Remember to make it as clear as possible that this is a credit note, not an invoice.

  • The credit details. Reference the invoice number the credit relates to, and then outline information such as the original amount paid, the amount that should have been paid, and the subsequent credit owed. It can also help to include a brief description of why the discrepancy arose.
  • Fulfillment. Explain how the customer can redeem the credit, including with clear details about how they can use it to make future purchases, such as what information they will need to reference.

 

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Image Credit Note by Nick Youngson shared under Creative Commons 3 - CC BY-SA 3.0