What Is a Credit Note?

A credit note is a document you issue to reduce or cancel the amount on an invoice you have already sent. It quotes the original invoice number and shows a negative amount, so the client's balance goes down while the original invoice stays as it was.

You would issue one when you overcharged a client, when part of a job was cancelled, when you agreed on a discount after invoicing, or when goods came back. Accountants prefer this to editing the original invoice because the record of what you billed stays intact, and both sides can see why the balance changed.

You can apply a credit note to the same invoice, hold it as credit against the client's next invoice, or pay it out as a refund. Credit notes usually get their own numbering sequence, such as CN-001, so they never clash with your invoice numbers.

A debit note works the other way. It increases what the client owes after an invoice was issued, for example when you undercharged.