A credit note that keeps the books straight

A credit note reduces what a customer owes without touching the original invoice. It names the invoice it relates to, lists what's being credited and says why, then states whether the money is going back or staying on account. Both sets of books end up telling the same story.

When to use it

• A customer returned an unused part from a job you've already invoiced.
• You billed three hours and worked two.
• Goods arrived damaged and you've agreed a partial refund.
• An invoice was wrong and needs cancelling before you issue a corrected one.

What a good one includes

• Its own number, from a separate sequence if your accountant prefers that.
• The invoice number it corrects. A credit with no link to an invoice is hard to reconcile.
• A one-line reason, which is what an auditor or the customer's bookkeeper will look for.
• The items credited with quantities and prices, mirroring how they were billed.
• How it's settled: refunded and by what route, or kept as credit.

Make one by saying what you need

Text it, type it or say it, the way you'd tell a colleague:

Credit note for Pine Street Cafe against INV-0316: one mixer tap returned, $38, refund to their card within 5 working days.

Questions

When do I use a credit note instead of editing the invoice?

Once an invoice has been sent or recorded, a credit note is the usual way to correct it. That leaves a trail, and some tax systems require one.

Is a credit note the same as a refund?

No. The credit note is the document, and a refund is the money going back. You can credit an account with no refund at all.

Does the customer have to do anything?

Usually not. They file it against the invoice, and a business customer may need to adjust the tax they reclaimed.