Credit Note Template
A credit note (or credit memo) is issued to reduce the amount a client owes, either partially or fully. This template references the original invoice, includes the adjustment reason, and handles tax recalculation automatically. Essential for proper accounting when issuing refunds, correcting errors, or applying discounts after invoicing.
What This Template Includes
- Credit note number
- Original invoice reference
- Reason for credit
- Credit amount
- Tax adjustment
- Net balance
How to Create Your Credit Note
- 1
Describe your work
Type a plain English description of the services you provided, the client, and the amount.
- 2
AI generates your invoice
InvoiceQuickly's AI fills in all fields with industry-specific formatting, tax calculations, and proper payment terms.
- 3
Review, download, and send
Check the details, download as PDF, and send directly to your client via email or a payment link.
Recommended Payment Terms
Credit notes are typically applied to outstanding balances or future invoices. If no outstanding balance exists, the credited amount should be refunded within 14-30 days.
Need help writing payment terms? Read our guide to invoice payment terms for best practices and templates.
Tax Information
Credit notes affect your tax obligations — they reduce the VAT/GST collected on the original transaction. Ensure credit notes are included in your tax return for the period they're issued. Keep credit notes linked to original invoices for audit purposes.
Industry context (2026)
Credit notes (also called 'credit memos') reverse or partially reverse a previously issued invoice. They're used for: (1) returned goods, (2) cancelled or partially cancelled services, (3) billing errors, (4) negotiated price adjustments, (5) pro-rated refunds. Tax authorities require credit notes to reference the original invoice number, state the reason, include sequential numbering of their own, and reduce the supplier's VAT/GST liability for the period. Issuing 'just a refund' without a formal credit note creates accounting and tax compliance gaps.
Worked example
ABC Marketing issued a $4,500 invoice for a March campaign that was partially cancelled mid-month. They issue a credit note: 'Credit Note CN-2026-0017 referencing Invoice INV-2026-0089 dated March 5, 2026'. Itemizes: 'Refund for cancelled email campaign series (3 of 5 sends) — -$1,500', 'Refund for unused stock photo licenses — -$250'. Total credit: -$1,750. Reason: 'Client paused campaign March 18; pro-rated refund per cancellation policy.' Original invoice value $4,500 - credit note $1,750 = net retained revenue $2,750. Client receives credit note; original invoice references this credit. Tax adjustment: VAT/GST originally charged on $4,500 reduced by VAT on $1,750 in next quarter's filing.
Common mistakes to avoid
Issuing refunds without credit notes
Refunds processed only as bank transactions don't reverse VAT/GST liability or update accounts receivable. Always issue a formal credit note that references the original invoice.
Not referencing the original invoice
Credit notes must include the original invoice number being credited. Without the cross-reference, accounting and tax authorities can't reconcile the adjustment.
Skipping sequential numbering
Credit notes need their own sequential numbering (CN-2026-001, CN-2026-002...) separate from invoices. Random or reused numbers create audit flags.
Forgetting the tax adjustment
When the original invoice charged VAT/GST, the credit note must reduce VAT in the same proportion. The tax authority expects the supplier to claim back VAT that was originally remitted on the cancelled portion.
Invoicing Tips
- 1Always reference the original invoice number on the credit note
- 2Include a clear reason for the credit (error, return, discount, cancellation)
- 3Never modify or delete the original invoice — always issue a credit note instead
- 4Use sequential credit note numbers separate from your invoice numbering
Related Resources
Frequently Asked Questions
When should I issue a credit note?
Issue a credit note when: goods are returned, you overcharged a client, you need to apply a post-sale discount, services weren't delivered as agreed, or there was an error on the original invoice. Never alter the original invoice directly.
What's the difference between a credit note and a refund?
A credit note reduces the amount owed — it can be applied to future invoices or result in a refund payment. A refund is the actual return of money. A credit note is the accounting document; a refund is the cash transaction.
How does a credit note affect VAT/tax?
A credit note reduces your VAT/GST liability for the period. If you collected £100 in VAT on the original invoice and issue a full credit note, you reduce your VAT liability by £100 on your next return.