Credit note

A credit note (also called a credit memo) is a document issued by a seller to reduce the amount owed on a previously issued invoice, used to correct overcharges, process returns, or apply discounts after the original invoice has been sent.

Applies in: Global

A credit note is the seller's way of saying "that amount we billed you, treat some of it as taken back." It always references a specific original invoice number and adjusts that invoice's outstanding balance. The buyer's accounts payable applies the credit against the invoice (or against future invoices from the same seller) rather than receiving a refund payment.

Use a credit note when the original invoice has already been issued and recorded, but the amount needs to come down. Common cases: a billing error caught after sending, returned or rejected goods, a service credit for downtime, a retrospective volume discount, or a project descoped after the invoice went out. If the invoice has not been sent yet, you amend or void it rather than crediting it.

For VAT or GST, a credit note carries the same tax treatment as the original invoice. If the original invoice charged 20% UK VAT, the credit note reverses 20% UK VAT, which reduces both the seller's output tax and the buyer's input tax on their respective returns. The credit note should reference the original invoice number explicitly so the tax authority can match the two.

Common questions about Credit note

When do I issue a credit note instead of cancelling an invoice?

If the invoice has been issued and recorded in your accounts (and especially if it has been reported on a VAT or GST return), you issue a credit note rather than cancelling. Cancelling a recorded invoice leaves a gap in your sequential numbering and a tax-reporting mess. A credit note keeps the audit trail intact and properly reverses the entries.

Does a credit note need to reference the original invoice?

Yes. Both for accounting clarity and for tax compliance, the credit note must cite the original invoice number it relates to. This is what lets the buyer apply the credit correctly and what lets the tax authority match the reversal to the original supply.

How does VAT or GST work on a credit note?

The credit note carries the same tax rate as the original invoice and reverses the tax amount proportionally. If the original charged 20% UK VAT on GBP 1,000 (GBP 200 VAT), a full credit note reverses GBP 1,000 plus GBP 200 VAT. The seller reduces output VAT, the buyer reduces input VAT, and both adjustments land in the period the credit note was issued.

Use JupiterInvoice for Credit note

Credit note on a JupiterInvoice invoice is a field, a label, and an audit trail your buyer can act on without an email back-and-forth.

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Related terms

Debit note Invoice Statement of account Proforma invoice VAT

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