Issue a properly referenced credit note that reverses or reduces an invoice you have already sent, keeping both sets of books reconcilable.
A credit note must identify the invoice it corrects. Without that link the customer’s ledger cannot reconcile the two documents.
Once an invoice has been issued, it is a numbered accounting record that has usually entered the customer’s books as well as yours. Changing the original — or deleting it — breaks the audit trail on both sides and, in many jurisdictions, is simply not permitted. The correct instrument is a credit note: a separate numbered document that offsets the amount you no longer wish to charge.
The essential element is the reference. A credit note must identify the invoice it corrects by number and date, so the customer’s bookkeeper can match the two entries and adjust the ledger. A credit note without that link is a loose document that cannot be reconciled against anything.
VAT and GST treatment is where credit notes carry real weight. If the original invoice charged tax and the supply is later reduced or returned, the customer’s input tax credit must be adjusted — and your own output tax position changes with it. That adjustment is only supportable if the credit note is properly issued and referenced.
Typical triggers are straightforward: goods returned, an overpayment, a pricing error caught after issue, work that was not delivered, or a discount agreed after the invoice went out. Each is a legitimate correction, and each should state its reason on the document.
A document that reduces or cancels an amount previously invoiced. It is issued as its own numbered record rather than amending the original invoice, and it references the invoice it corrects.
An issued invoice is an accounting record that has likely already been entered in the customer’s books. Amending or deleting it breaks the audit trail and is not permitted in many jurisdictions. A credit note keeps both ledgers reconcilable.
Yes. Where tax was charged on the original invoice, a credit note adjusts both your output tax and the customer’s input tax credit. That is why the reference to the original invoice and the reason for the credit must be stated.
When goods are returned, an overpayment occurs, a pricing error is discovered, a service is not delivered, or a discount is agreed after invoicing. In each case the credit note should name the reason and the invoice being corrected.