What Is A Credit Note And When To Issue it?

February 22, 2021

We already discussed what an invoice is and who is obliged to issue it. In short lines, the invoice is a document that describes the details of a commercial transaction and can be used by B2B customers to reclaim any indirect taxes incurred on purchases, like VAT, GST, and other types of indirect taxes.

However, what happens when someone makes a mistake and issues an invoice for the incorrect amount, or if any post-purchase price adjustment occurs? This is where credit notes come in.


What Are Credit Notes?

There are many definitions of credit notes, but the most accurate is - a credit note is an official business document that gives you the ability to cancel out the transaction, either fully or partially. In other words, credit notes allow you to delete amounts from your financial records without deleting the invoice itself. 


When To Issue A Credit Note?

Credit notes, also known as credit memos, are often issued in cases of post-purchase price adjustments, refunds, or mistakes in tax calculation. In most jurisdictions, credit notes’ issuance in the cases mentioned above is not optional but mandatory. 

Some of the cases when you need to issue a credit note:

  • Full refunds of the charged amount
  • Partial refunds
  • Crediting the next purchase


What Information Must A Credit Note Contain?

The same as an invoice, a credit note must contain the required information to be legally valid. If you missed our article What information should an invoice contain, you can find it here.

Regarding the information a credit note must contain, they are almost the same as those that an invoice must contain. 

There are three main differences between the information displayed on invoices and credit notes:

  • In the case of an invoice, you must indicate the word “Invoice”. On the other hand, in the case of credit notes, you will display the words “Credit note”.
  • Credit notes usually reference the original invoice. That would mean that you must express the number of the invoice a particular credit note refers to. The exception is the case when a credit note applies to a future purchase. 
  • While invoices have positive amounts, credit notes must have negative amounts because credit notes cancel out the original (positive) amounts.


Fonoa Automated Solution For A Hassle-Free Invoicing

We know that you have many more important things to focus on in your business, and issuing locally-compliant invoices and credit notes can be complicated. That’s why we built Fonoa Invoicing. It automatically generates locally-compliant tax invoices and credit notes for transactions in any country. 

Fonoa Invoicing allows you to create invoices and credit notes in 50+ languages, including English, Spanish, Italian, French, German, Portuguese, and Hungarian.