Credit Note Management: Correcting Invoices and Refunding Clients

A credit note, also called a credit memo, is a document that reduces or cancels an amount you have already invoiced. The original invoice stays on record, and the credit note sits beside it and refers back to it.

Three different corrections get called "issuing a credit" in everyday speech, and they aren't the same thing.

Voiding cancels an invoice that shouldn't stand at all, for example one sent to the wrong client, duplicated, or made with the wrong amounts before the client has paid.

A credit note records that you are charging less than the invoice shows. The client is then either refunded or has the amount offset against future work.

A refund is the money itself going back to a client who has already paid.

This page describes only what Billed's own product pages list. For correcting invoices and handling money owed back, those are:

Void invoices: Billed's invoice software page says "Made a mistake while creating an invoice? Void it in Billed for better accounting."

Refunds: "Refund your customers from within Billed and keep track of refunds."

Taxes and discounts: save your tax settings once and "Billed calculates taxes automatically" on your invoices; you can also give clients a discount on an invoice.

Payments: clients can pay invoices by card or PayPal, and you can record offline payments such as checks and cash.

Records: "Billed keeps the complete history of an invoice" from the moment it is created, and each client profile shows that client's invoices, payments and outstanding balance. Invoice reports show "partially paid, past due and paid invoices" (Billed's financial reporting page).

When you need a formal credit note, use the credit note template described below.

Riverside Web Studio (an example business, with made-up figures) sends invoice INV-1042 for $3,600.00: design $1,800.00, development $1,500.00 and hosting setup $300.00. No tax applies in this example. The client then points out that hosting setup wasn't needed, and the studio agrees to take the $300.00 off.

If INV-1042 hasn't been paid yet: void INV-1042 in Billed, then create and send INV-1043 for $3,300.00 with design and development only, and let the client know it replaces INV-1042. The client pays INV-1043 by card, and the payment shows against the client in Billed.

If the client has already paid INV-1042 in full: the invoice was valid and has been paid, so keep it, and handle the $300.00 separately. Issue credit note CN-001 for $300.00 that names INV-1042 and its date and gives the reason (hosting setup not required), then refund the $300.00. Billed's pages list refunds from within Billed, but they don't say whether a refund can be for part of a payment, so confirm that before relying on it for a partial amount like this one.

Both routes end in the same place: the client pays a net $3,300.00 for design and development. Before payment, that's $3,300.00 on INV-1043. After payment, it's $3,600.00 paid less a $300.00 refund.

If the invoice had included tax, the correction would include the tax on the amount taken off. With a 10% tax on every line, for example, removing the $300.00 line also removes $30.00 of tax, so the credit and the refund would be $330.00. On a reissued invoice, Billed calculates the tax from your saved tax settings.

In the UK, HMRC's VAT guide (VAT Notice 700, paragraph 18.2.3, last updated June 25, 2026) sets two conditions for a credit note to be valid for VAT purposes. It must reflect a genuine mistake or overcharge or an agreed reduction in the value of the supply, and be issued within 14 days of the refund payment being made to the customer. It must also give value to the customer, which HMRC describes as a genuine entitlement for the amount overcharged "either to be refunded or offset against the value of future supplies".

The same paragraph lists what it must show: its identifying number and date of issue; the supplier's name, address and registration number; the customer's name and address; a description of the goods or services credited, with the quantity and amount for each; the total credited excluding VAT; the rate and amount of VAT credited; and the number and date of the original VAT invoice.

HMRC also says (paragraph 18.2.1) that when you allow a credit, you and your customer should both adjust the original VAT charge, unless the customer can reclaim all the VAT as input tax and you both agree not to adjust it. Other countries set their own rules, so check with your tax authority or accountant.

Use Billed's credit note template to create one, and keep it with the original invoice.

Everything on this page uses features listed on Billed's product pages.

Keep credit notes with the template, refund the amount owed, and give your accountant the credit note with the original invoice.