A credit note is a type of document that businesses typically provide a customer when the amount on an invoice is disputed or incorrect. This might be due to an admin error, or because the customer requires a full or partial refund.
In many cases an updated invoice might suffice, but those using time-saving online accounting software will be more familiar with credit notes as a means of cancelling out debt owed. Issuing a credit note means both parties have a clear record of the discount.
Here are a couple of scenarios of when you might want to issue a credit note to a client.
An unpaid invoice you’ve issued has an incorrect amount
Let’s say that before your payment has come in, you realise you’ve mistakenly added an extra zero and issued a sales invoice for £1,000 instead of £100.
This is where it’s practical to use a credit note instead of a refund, because you technically can’t issue a refund of money that you never received in the first place.
Instead, you can raise and issue a credit note for £900, and your client will receive the credit note documenting the error.
Your accounts and that of the client should now correctly reflect a debt of £100 after posting the original invoice for £1000 and the £900 credit note.
A customer has paid a proportion of the invoice but wants to pay less than the total
Imagine that you’ve performed a service for a total of £1,000, but the client is unhappy and believes that they should pay you no more than £800.
If you agree and wish to lower the total of the invoice to £800, you should issue a credit note for the difference of £200.
If you are a Crunch client there are further instructions on how to issue credit notes within the Crunch app in our Help Centre article.
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