Credit Note Template
A credit note cancels or reduces the amount a customer owes on a previously issued invoice
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Key Features
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What a credit note actually does
When an invoice has already been sent or recorded, you cannot simply edit or delete it — doing so breaks your numbering sequence and your audit trail. A credit note solves this by creating a separate, negative document that references the original invoice and reduces the amount owed by a stated value. The original invoice stays intact; the credit note offsets it.
This matters for tax and bookkeeping. In VAT and sales-tax jurisdictions, a credit note reverses the tax you originally charged, so your tax records stay accurate. Deleting an invoice instead would leave you having reported tax you never actually collected.
When to issue a credit note
- A client was overcharged or billed for the wrong quantity
- Goods were returned or a service was cancelled after invoicing
- You agreed a discount or goodwill reduction after the invoice was sent
- A duplicate invoice was issued by mistake
- A pricing or tax error needs correcting on a paid or unpaid invoice
What to include on a credit note
A credit note looks much like an invoice, with a few key differences. Include your business name and contact details, the client's details, a unique credit note number, the issue date, and — critically — a reference to the original invoice number it relates to. List the items being credited with their amounts, show the tax being reversed, and state the total credit. Add a short reason for the credit so both sides have a record of why it was issued.
How to create a credit note with Billed
Rather than rebuilding a document by hand, create the credit note against the original invoice in Billed so the reference, client details, and tax all carry over correctly. Set your business details once and they appear on every credit note automatically.
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What's included in this document template
| Document | Purpose | Effect on amount owed |
|---|---|---|
| Invoice | Request payment for goods/services | Increases what the client owes |
| Credit note | Cancel or reduce a prior invoice | Decreases what the client owes |
| Refund | Return money already paid | Returns cash to the client |
| Debit note | Request an additional amount | Increases what the client owes |
Why a credit note beats editing an invoice. We compared three ways businesses 'fix' a wrong invoice: editing it, deleting it, and issuing a credit note. Editing or deleting a sent invoice breaks the sequential numbering that tax authorities expect and removes the paper trail an auditor looks for. A credit note preserves both — the original invoice stays in the record and a separate negative document explains the correction. For any business registered for VAT or sales tax, the credit-note route is the only one that keeps reported tax matching tax actually collected.
When this isn't for you
If you are correcting an invoice that was never sent or recorded anywhere, you do not need a credit note — just edit the draft before it goes out. Credit notes exist for invoices that have already left your system. If you operate inside an ERP or regulated billing platform, follow that system's credit-memo workflow rather than a standalone template, since it will handle the ledger entries automatically. For small businesses correcting issued invoices, a credit note is the right tool.
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