What is a credit note? A plain-English guide with a free template
You charged for 8 hours and the job took 6. Or the cleaner billed a customer twice. Or a customer sent back one of the 2 door handles you supplied. The invoice is already out, and now it is wrong. That is what a credit note is for.
A credit note is a document you send a customer to reduce or cancel what they owe on an invoice you have already issued. It does not rewrite the old invoice. It sits next to it and says by how much the amount owed goes down.
3 reasons to issue a credit note
- • You made a mistake or overcharged, for example the wrong hours or the wrong price
- • The customer returned goods, or part of the job was cancelled
- • You agreed a reduction, such as a discount after the invoice went out
In each case the fix is the same: correct what the customer owes and keep your own record of the first invoice. Nothing is deleted.
Every credit note points back to the original invoice
A credit note looks like an invoice in reverse. The part that matters most is the link to the original:
- • A credit note number, unique like an invoice number
- • The date you issue it
- • The number and date of the original invoice
- • Your details and the customer’s details
- • What is being credited, with quantities and amounts
- • The total credited
- • A short reason, so both of you can see why
No link, no paper trail.
Download the credit note template
Free to download, no account needed. The same layout in 3 formats.
What a £18.00 credit note does to a £246.00 invoice
A joiner sends invoice 0014 for £246.00: 6 hours of labour at £35.00 and 2 sets of door furniture at £18.00. The customer returns 1 set. No VAT is charged, because the joiner is not VAT registered.
| Document | Number | Amount |
|---|---|---|
| Original invoice | 0014 | £246.00 |
| Credit note for 1 set of door furniture, referring to invoice 0014 | CN-0001 | £18.00 |
| Amount the customer now owes | £228.00 |
The credit note of £18.00 turns an invoice of £246.00 into £228.00 owed. Invoice 0014 stays as sent.
Credit note or refund?
They solve different problems. A credit note changes what the customer owes. A refund pays back money the customer has already paid. Often you use both:
- • The customer has not paid yet. Issue a credit note, and they pay the reduced amount
- • The customer has already paid. Issue a credit note, then either refund the difference or take it off their next invoice
EasyInvoice handles both. You can create credit notes and refunds on iPhone and in the browser. The Android app does not include them. For how it works step by step, see the help page on credit notes and refunds.
Credit note or new invoice?
If the invoice has gone to the customer, avoid editing it or deleting it. Issue a credit note for the wrong amount, then, if needed, a new invoice with the right one. The customer then has a clear paper trail, and so do you. Both records stay. For the invoice side, use the invoice template.
If you are VAT registered, the rules are stricter
Credit notes carry extra rules when VAT is involved. GOV.UK says a credit note is valid for VAT if it reflects a genuine mistake or overcharge, or an agreed reduction in the value of the supply, and is issued within 14 days of the refund payment being made to the customer. It must also show:
- • The identifying number and date of issue
- • The supplier’s name, address and registration number
- • The customer’s name and address
- • A description of the goods or services credited
- • The quantity and amount for each description
- • The total amount credited, excluding VAT
- • The rate and amount of VAT credited, in sterling
- • The number and date of the original VAT invoice or invoices
If you are not VAT registered, these VAT rules do not apply to you. If you are, check the full GOV.UK guidance or ask your accountant before you rely on a template. A template cannot check this for you.
Fix an invoice without starting again.
Create credit notes and refunds in EasyInvoice Basic, on iPhone and in the browser. Free trial for 14 days, no card needed.
A debit note does the opposite
A debit note increases the amount a customer owes, for example when you undercharged. For VAT, GOV.UK describes a valid debit note as one that reflects a genuine mistake or undercharge, or an agreed increase in the value of the supply. Credit down, debit up.
FAQ
What is a credit note in simple terms?
A credit note is a document you send a customer to reduce or cancel what they owe on an invoice you have already issued. It names the original invoice and the amount being credited.
Is a credit note the same as a refund?
No, a credit note is not a refund. A credit note changes what the customer owes. A refund pays back money the customer has already paid. If a customer has paid, you can issue a credit note and then refund the difference or take it off their next invoice.
What should a credit note include?
A credit note number, the date, the number and date of the original invoice, your details and the customer’s, what is being credited with quantities and amounts, the total credited and a short reason. If you are VAT registered, GOV.UK lists more.
How long do I have to issue a credit note for VAT?
To be valid for VAT, a credit note must be issued within 14 days of the refund payment being made to the customer, and it must reflect a genuine mistake or overcharge, or an agreed reduction. If you offset the credit against a future invoice instead of refunding it, ask your accountant how the 14 days applies.
What is the difference between a credit note and a debit note?
A credit note reduces what a customer owes, and a debit note increases it. A debit note is used when you undercharged or the price was agreed to go up.
Can I create a credit note in EasyInvoice?
Yes, in the Basic plan, on iPhone and in the browser. The Android app does not include credit notes or refunds. EasyInvoice has no free plan. It has a 14-day free trial with no card needed, then Basic costs £6.99 a month.
