A credit note, also called a credit memo or a credit invoice, is a document a supplier issues to reduce or cancel an amount on an earlier invoice. Credit memo is the common term in the US, while credit note is common in the UK, India, Australia and much of Europe. This post explains what the document shows, gives a worked example and covers when to ask for one. If you think an invoice is wrong, check the invoice first.
What is a credit note? (credit memo, credit invoice)
A credit note lowers the amount a customer owes. The supplier issues it after the original invoice has been sent, so the original stays on record and the credit note corrects it.
A credit note is the right document when:
- You were overcharged.
- Goods were returned.
- A price or quantity on the invoice was wrong.
- An order was cancelled.
- A discount was agreed after the invoice was issued.
Credit note vs credit memo vs credit invoice
They are the same document. Only the name changes with the region and the accounting software.
| Name | Commonly used in | What it means |
|---|---|---|
| Credit note | UK, India, Australia, much of Europe | A document that reduces what the customer owes |
| Credit memo | US, and in many accounting systems | The same document |
| Credit invoice | Some countries and businesses | The same document, sometimes used for a credit that works like a negative invoice |
If a supplier uses a different name from the one you expect, check what the document does, not what it is called.
What a credit note should show
Rules differ by country, so confirm the exact requirements with your tax authority. In general, a credit note shows:
- A clear label, such as "Credit note".
- The credit note number and date.
- A reference to the original invoice number.
- The supplier's and customer's details.
- What is credited, and why.
- The amount credited.
- The tax credited.
- The resulting balance.
As an example of a tax authority's list, HMRC's VAT guide (Notice 700) lists for a VAT credit note an identifying number and date, the supplier's and customer's details, a description, quantity and amount for each item credited, the VAT rate and amount credited, and the number and date of the original VAT invoice. The Australian Taxation Office calls the equivalent document an adjustment note, which must show that it is an adjustment, identify the supplier, give the date and a brief reason, and show the GST adjustment.
Credit note example
This is an example to compare against, not a downloadable template and not tax advice.
An invoice shows a subtotal of 1,250.00, but the lines add up to 1,205.00. The supplier agrees and issues a credit note for the 45.00 difference.
CREDIT NOTE CN-2031
Date: 20 October
Original invoice: INV-1042
Description Amount
Subtotal overstated on INV-1042 45.00
Tax at 20% (illustration only) 9.00
Total credited 54.00
The tax rate in the example is only an illustration. The right treatment depends on your country and your tax authority.
Credit note template and format
A credit note usually follows the layout of an invoice. A header with the word "credit note", the number and the date. A reference to the original invoice. Line items showing what is credited. Then the totals: the amount credited, the tax credited and the new balance. The example above shows this in a small form.
Credit note vs corrected invoice
A credit note reduces the original invoice and leaves it on record. A corrected invoice replaces the original. Which one fits depends on the supplier's accounting rules and on tax rules. A credit note is common when the original amount was too high. For the steps and an email to send the supplier, see how to fix invoice errors.
Credit memo vs debit memo (and debit note)
A credit memo reduces what the buyer owes. A debit memo, also called a debit note, does the opposite: it increases what is owed, or asks the other side for a refund. A supplier might issue a debit memo when an invoice was too low, and a buyer might issue one to ask for money back for returned goods.
| Document | Effect |
|---|---|
| Credit memo (credit note) | Reduces the amount the buyer owes |
| Debit memo (debit note) | Increases the amount owed, or requests a refund |
How to check a credit note
Compare the credit note's figures against the original invoice: the invoice number, the amount, the tax and the reason. InvoiceInspect is built to check invoices, so use it to prove an error on the original invoice, then compare the credit note by hand. It does not validate credit notes.
Credit memo FAQ
What does credit memo mean?
A credit memo is a document from a supplier that reduces the amount you owe on an earlier invoice. It is the US name for what is called a credit note elsewhere.
Is a credit note the same as a credit memo?
Yes. Credit note and credit memo are two names for the same document.
Does a credit note reduce the VAT or GST I owe?
Generally a credit note also adjusts the tax on the original invoice, but the rules differ by country. Check with your tax authority, such as HMRC in the UK or the ATO in Australia.