Credit Note vs Invoice: What Is a Credit Note and When to Issue One

An invoice asks a customer to pay; a credit note reduces or cancels what they owe on an invoice you have already sent. You issue a credit note when an invoice was wrong, goods were returned, work was cancelled or you agreed a discount after invoicing. The original invoice stays in your records, and the credit note sits alongside it so your accounts and any VAT stay accurate.

Credit note vs invoice at a glance

	Invoice	Credit note
Purpose	Requests payment	Reduces or cancels an amount owed
Effect on balance	Increases what the customer owes	Decreases what the customer owes
Numbering	INV-0001, INV-0002…	Separate sequence, e.g. CN-0001
References	Order or quote	The original invoice number
Effect on VAT	Charges VAT	Reduces the VAT charged

When to issue a credit note

• Billing mistakes: wrong price, quantity or client details.
• Returns: the customer sent goods back.
• Cancelled work: part of a job did not go ahead.
• Agreed discounts: a goodwill reduction after invoicing.
• Duplicate invoices: the same work was billed twice.

What a credit note should include

• The words "Credit note" at the top
• A unique credit note number
• The date of issue
• Your business details and the customer's details
• The original invoice number and date
• The reason for the credit
• The items and amounts being credited
• If VAT registered, the VAT rate and VAT being credited. See VAT invoice requirements

Credit note example

Invoice INV-0042 charged a client for 10 hours of design at £60, but only 8 hours were worked.

Credit note CN-0007	Qty	Rate	Amount
Credit for 2 hours design billed in error on INV-0042	2	£60.00	£120.00
Total credited			£120.00

The client now owes £480 instead of £600. If they had already paid the full £600, you would either refund £120 or let them use the credit against their next invoice.

Full credit and re-invoice vs partial credit

For small corrections, a partial credit note is cleanest. If an invoice is wrong in several places, credit it in full and issue a fresh invoice with a new number. Never reuse the old invoice number. Our guide to numbering invoices explains why.

Credit note vs debit note vs refund

• Credit note: issued by the seller to reduce what is owed.
• Debit note: usually issued by a buyer to request a credit, or by a seller to increase an amount already invoiced.
• Refund: the actual return of money after a credit note when the invoice was already paid.

Need to reissue a corrected invoice? Create one in seconds with our free invoice generator.

Frequently asked questions

What is a credit note?

A credit note is a document a seller issues to reduce or cancel the amount owed on an invoice already sent, for example because of an error, a return or an agreed discount.

Can I just delete or edit an invoice instead?

No. Once an invoice has been sent it should stay in your records. Issue a credit note to reverse all or part of it, and a new invoice if the amount needs correcting.

Does a credit note need its own number?

Yes. Give credit notes their own sequence, such as CN-0001, and always reference the original invoice number.

Is a credit note the same as a refund?

Not exactly. A credit note reduces what the customer owes. If they have already paid, you can either refund the money or let them use the credit against a future invoice.

What must a VAT credit note show?

It should show the same basic details as a VAT invoice, the original invoice number and date, the reason for the credit, the amount credited excluding VAT, the VAT rate and the VAT being credited.