A credit note (or credit memo) is a negative counterpart to an invoice. When goods come back, work is disputed, or an invoice simply overcharged, the seller issues a credit note referencing the original invoice number and stating the amount credited. The buyer can offset it against what they owe or take it as a refund.
The critical property is that nothing is deleted: the original invoice stands, the credit note stands beside it, and the audit trail explains itself. Sequential numbering stays intact — which is exactly what tax authorities and auditors want to see.
Why It Matters
The tempting shortcut — edit or delete the wrong invoice and reissue — breaks the numbering sequence and, in VAT/GST systems, can misstate tax already reported. A credit note corrects the books while preserving the history. If you invoice at any volume, "never delete, always credit" is one of the habits that keeps year-end painless.
Example
A wholesaler invoices a café $500 for supplies (invoice #341). Two boxes arrive damaged, worth $80. Rather than reissuing #341, the wholesaler sends credit note #CN-055 for −$80 referencing invoice #341. The café pays $420, and both documents together explain why.
Frequently Asked Questions
Is a credit note the same as a refund?
No. The credit note is the document recording that an amount is owed back or no longer owed; a refund is one way of settling it. Credits are often offset against the next invoice instead of refunded in cash.