A credit note is a document issued by a seller to reduce the amount owed on a previously issued invoice, used for returns, corrections, or agreed discounts after the fact.
A credit note (also called a credit memo) is issued by a seller when the amount on a previously issued invoice needs to be reduced. Common reasons include: a buyer returned goods, a service was not delivered as agreed, an invoice contained an error (wrong price, quantity, or tax rate), or a post-sale discount was agreed. The credit note cancels all or part of the original invoice amount, reducing what the buyer owes.
For VAT purposes, a credit note is a tax document. When a VAT invoice is partially or fully reversed, the seller must issue a credit note that reduces their output VAT and gives the buyer the right to adjust their input VAT claim accordingly. Tax authorities in most jurisdictions require credit notes to reference the original invoice number, state the reason for the credit, and show the VAT amount being reversed.
A credit note is not a refund instruction or a payment. It adjusts the accounting records. If a buyer has already paid the original invoice, a separate refund must be issued to settle the credit in cash; alternatively, the credit can be applied against a future invoice. Many businesses track outstanding credit balances and apply them during the next billing cycle.
Invotify includes credit notes as a native document type (All plans). You can issue full or partial credits, link each credit note to its original invoice, apply credits against outstanding invoices, and generate a PDF credit note. Credit notes have their own sequential numbering series and status lifecycle (draft → issued → applied → voided). Dual tax rates per line ensure the VAT reversal is correctly recorded.
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