Credit Note Template
Cancels or reduces an invoice you have already issued.
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| Credit note no. | [number] |
| Against invoice | [invoice no.] |
| Date | October 14, 2026 |
This credit note is issued in respect of [reason]. The amount below is credited to your account and may be set off against the invoice referenced above.
| Description | Qty | Amount |
|---|---|---|
| [add one line per item] |
What is a Credit Note?
A credit note is a document you issue against an invoice you have already sent, reducing or cancelling what the customer owes. It matters because you cannot quietly rewrite an invoice that has left the building: the original is already in your sales ledger and probably in a filed tax return. The credit note is the paper trail that explains why the figure changed, and it is what lets both sides' books agree again.
Sellers of every size issue credit notes — freelancers, wholesalers, agencies, service businesses. The trigger is usually one of a short list: goods came back, the price on the invoice was wrong, the same invoice went out twice, a discount was agreed after billing, or a job was cancelled part-way through. On the other side, a buyer's accounts payable team will often refuse to pay a reduced amount until the credit note arrives, because their system has no way to close the difference without a document to post against.
Tax treatment is where local rules bite. A UK VAT credit note has prescribed content and a time limit tied to the original supply, set out in HMRC's VAT guidance. Under Indian GST, a credit note must be reported in the supplier's return and there is a cut-off after the end of the financial year, so check the current deadline before issuing one late. EU member states apply the VAT Directive through their own invoicing rules, Australia calls the equivalent an adjustment note, and US sales tax adjustments are set state by state. Confirm what applies to you.
A credit note is not a refund. Issuing one reduces the balance on the account; it does not move money, and if the customer has already paid, you still owe them a payment. It is not the way to deal with a customer who simply will not pay — a bad debt is an accounting decision with its own treatment. It is not a gift voucher or store credit, and it does not cancel the underlying contract or any obligation still running under it.
What to put in a Credit Note
These are the details this template asks for. Anything left blank is marked in red on the preview so you can see what is still missing.
| Field | What goes in it |
|---|---|
| Your business name | For example: Barton Supply Co. |
| Your address | For example: Unit 7, Barton Road, Columbus, OH 43212 |
| Your tax registration no. optional | For example: EIN 47-3821590 |
| Customer name | For example: Halliwell Interiors Inc. |
| Customer address | For example: 44 High Street, Columbus, OH 43215 |
| Credit note no. | For example: CN-2026-0142 |
| Against invoice no. | For example: INV-2026-1187 |
| Reason for credit | Free text |
| Currency | Free text |
| Tax rate % optional | For example: 20 |
| Lines credited | One per line: Description | Qty | Amount |
How to write a Credit Note
Reference the invoice you are correcting
Put the original invoice number, its date and its total on the credit note. Without that link the customer's ledger cannot match the credit to anything and it sits unallocated. If the credit covers several invoices, list each one with the amount being credited against it rather than showing a single lump sum at the bottom.
Give the credit note its own number series
Number credit notes in their own unbroken sequence — CN-2026-014, not a reused invoice number with a letter bolted on. A separate series means you can count how many you have issued, spot gaps, and reconcile the ledger at year end without mistaking a credit for a sale or double-counting revenue.
State the reason in one plain line
Write what actually happened. 'Return of 3 units, order 4471, received with cracked casing' is a reason. 'Adjustment' is not, and it is the line that gets queried a year later when nobody remembers. The reason also drives the tax treatment, so vague wording creates work for whoever prepares the return.
Show tax separately at the original rate
Mirror the tax lines on the invoice you are correcting: the rate that applied on the invoice date, the net amount, the tax amount and the gross. If the rate has changed since, the credit still follows the original supply. Include your tax registration number so the customer can reverse the input tax they claimed.
Say how the credit will be settled
State whether the amount will be offset against the next invoice or repaid, and if repaid, by what method and by when. 'To be set against invoice 4512, due 30 April' closes the question. Leaving it unstated is how credits sit on a supplier account for years while the customer quietly waits for money.
Common mistakes
- Reusing the invoice number series for credit notes creates duplicate references in both ledgers and makes month-end reconciliation impossible to complete cleanly.
- Crediting the full invoice when only part of the order came back overstates the reduction and leaves you chasing the difference as a fresh debt.
- Omitting the tax breakdown means the customer cannot reverse the input tax they claimed, so their accounts team returns the document and the invoice stays open.
- Issuing a credit note when the customer has already paid, and then never making the refund, leaves a credit balance sitting on their account indefinitely.
- Sending the credit note to the person who placed the order rather than to accounts payable means the original invoice stays open and the chasing letters keep arriving.
Frequently asked questions
What is the difference between a credit note and a refund?
A credit note is a document that reduces what is owed on an account. A refund is a payment that moves money back to the customer. If the invoice was unpaid, the credit note alone settles it. If the customer had already paid, the credit note records the reduction and a separate payment is still needed to make them whole.
Can I just delete or reissue the original invoice instead?
Once an invoice has been sent and entered in your records, deleting it breaks the number sequence and removes the audit trail, and if it fell in a period you have already reported on, it changes a filed figure. A credit note leaves both documents visible and explains the difference, which is what an auditor or tax officer expects to see.
Does a credit note need its own number?
Yes, and it should be sequential. The number is how the credit is referenced in both ledgers, how you prove none are missing, and how the customer's system allocates it. Most tax authorities that prescribe content for credit notes include a unique identifying number in the list, so treat it as required rather than a nicety.
How long do I have to issue a credit note?
There is no single answer. Tax rules commonly set a window tied to the original supply or to the end of a financial year — Indian GST has a stated cut-off, and UK VAT guidance sets a time limit for adjusting an earlier supply. Check the current rule with your revenue authority before issuing one against an old invoice.
Can a credit note be for more than the original invoice?
It should not be. A credit note reduces a specific invoice, so crediting more than was charged creates a negative sale with nothing behind it. If you owe the customer more than the invoice value — compensation, a goodwill payment, a separately agreed sum — handle that as its own transaction rather than inflating a credit note to cover it.
This page explains general practice and is not legal advice. Requirements differ between countries and, in some cases, between states — check what applies where the document will be used.