Flexible Invoicing with Credit Notes
Sometimes invoices need adjustments after they've been sent. Whether you're correcting an error, offering a discount, or accounting for returned goods, a credit note reduces the amount owed without deleting the original invoice. This keeps your financial records accurate and provides clear documentation for both you and your client.
What is a Credit Note?
A credit note is an official document that reduces the balance on an existing invoice. Think of it as the opposite of an invoice: instead of requesting payment, it tells your client "you owe us less than the original invoice stated."
Credit notes are linked to their original invoice, so your records always show the full history of the transaction, including the original amount, the credit applied, and the final balance owed.
When to Use a Credit Note
Credit notes are typically issued when:
- Complimentary service or goodwill gesture – You provided something for free as a courtesy or to resolve a complaint.
- Pricing correction – The original invoice contained an error, such as an overcharge or incorrect rate.
- Returned goods – The client returned products or cancelled part of their order after the invoice was issued.
- Post-invoice discount – You agreed to a discount after the invoice was already sent, such as for a bulk order or early payment.
- Scope reduction – Part of the agreed work was not completed or was removed from the project.
Before You Begin
Make sure you have an approved invoice that requires adjustment. Credit notes can only be added to invoices that are in Due, Overdue, or Partial Payment status.
How to Add a Credit Note
- 1 Navigate to Finance → Income and open the Invoices tab.
- 2 Click on the invoice you want to add a credit note to.
- 3 In the Quick Actions panel, click the Add Credit Note button.
- 4 Review and fill in the required fields.
- 5 Click Add Credit Note to save.
Once saved, the invoice balance updates immediately to reflect the credit. If the credit note covers the full remaining balance, the invoice status changes to Paid.
Understanding the Credit Note Fields
When you click Add Credit Note, the form opens with some fields pre-filled to save you time:
- Credit Note Date defaults to today's date. You can change this to reflect when the credit was actually agreed upon.
- Amount is pre-filled with the full invoice balance. Adjust this if you're issuing a partial credit.
- Remarks is required. Enter a clear explanation for why the credit note is being issued.
What Happens After Adding a Credit Note
Once a credit note is added, several things happen automatically:
- The invoice balance updates to reflect the credit applied.
- If the credit note covers the full remaining amount, the invoice status changes to Paid.
- The credit note appears as an entry in the Invoice Activity section.
- A Credit Note document is generated with its own reference number, such as CN-20260100001-1.
The credit note document is a formal record that you can share with your client. It includes your business details, the original invoice reference, the credit amount, and your remarks.
Viewing, Downloading, or Removing a Credit Note
You can manage credit notes from the Invoice Activity section on the invoice detail page:
- Click View to see the full credit note details and reference number.
- Click Download to save the credit note as a PDF for your records or to send manually.
- Click Send Email to email the credit note directly to your client with the PDF attached.
- Click Remove to delete the credit note if it was added by mistake.
Frequently Asked Questions
The credit note follows the tax treatment of the original invoice. If your invoice includes tax, the credit note will also include tax calculated at the same rate. If the invoice has no tax applied, the credit note will not include tax. This ensures your tax reporting remains accurate.
Yes. When adding a credit note, simply adjust the Amount field to credit only part of the invoice total. For example, if a client returns one item from a larger order, you can issue a credit note for just that item's value.
Yes. Each credit note is logged as a separate entry in the Invoice Activity. This is useful when adjustments happen at different times, such as a partial return followed by a goodwill discount. The invoice balance updates after each credit note is added.
A credit note reduces the amount owed and is typically shared with the client as an official document. Use it when both parties agree on the adjustment. A write-off removes an unpaid invoice from your books when you don't expect to collect payment, such as when a client becomes unreachable or disputes the charge. Write-offs are internal accounting actions and are not shared with the client.
No. Once a credit note is saved, it cannot be edited because it's an official financial document. If you need to make changes, remove the existing credit note and create a new one with the correct details.
No. Credit notes are not sent automatically. You need to email the credit note to your client manually by clicking Send Email in the Invoice Activity section. This gives you control over when and how you communicate the adjustment.
What's Next?
Now that you understand credit notes, explore these related guides:
- Writing Off an Invoice – Remove uncollectible invoices from your books
- Recording a Payment – Mark invoices as paid when you receive funds
- Understanding Invoice Statuses – Track where each invoice stands in the payment cycle