You have sent an invoice and something is wrong. The price, the quantity, a line that should not be there, or the customer has returned half the order. The instinct is to fix the invoice and resend it. Do not.
Why not just edit it
Because your customer has already filed the first version, and possibly entered it into their accounts. Once two documents share a number and show different figures, nobody can tell which is authoritative, and reconciliation becomes an argument. In most jurisdictions an issued invoice is also part of your tax record, and quietly rewriting it is not permitted.
The correction is a second document that refers to the first.
What a credit note does
It reduces what is owed on an invoice you have already issued. It does not move money. You might issue one and never make a refund, if it simply cancels part of an unpaid bill.
Use one when:
- Goods were returned.
- The work was cancelled after the invoice went out.
- You overcharged, or applied the wrong rate.
- You agreed a discount after the fact.
What to put on it
- Its own number, from its own sequence.
- The original invoice number. This is the field that matters most. Without it neither side can match the two.
- Only the lines being credited, at the rates on the original invoice. If you charged 12 and 3 came back, the credit note lists 3.
- A short reason. “Three units returned, 14 August” saves a phone call.
Positive or negative amounts?
Keep the figures positive and let the title do the work. A credit note is understood to reduce what is owed, so a credit note for 300 is clearer than an invoice for minus 300. Matching the original invoice’s rates exactly matters more than the sign.
Partial credits
Perfectly normal. Credit the three returned units and the rest of the invoice stands. The customer owes the difference, and the two documents together tell the whole story.
If the invoice is already paid
You can still issue the credit note. It creates a credit on the account, which either offsets the next invoice or is refunded. Say which on the note, so the customer is not left guessing.
The one thing never to do
Do not delete an invoice you have issued and pretend it did not exist. The gap in your numbering is exactly what an auditor looks for, and the customer may well still have their copy.