An invoice creates or records a billed amount. A credit note is generally used to document a credit, reduction or correction linked to an earlier invoice.
An invoice requests payment; a credit note documents a credit or adjustment. A credit note is commonly linked to an existing invoice and explains why the amount due or account balance is being reduced or corrected.
| Feature | Invoice | Credit note |
|---|---|---|
| Effect in the billing record | Records charges and an amount being billed. | Records a credit or adjustment against a prior charge or account. |
| Typical reason | Billing for a supply or agreed milestone. | Return, agreed price reduction, correction or another documented adjustment. |
| Reference | Has its own invoice identifier and transaction details. | Should identify the related invoice or account record where relevant. |
| Next action | Customer pays or queries under the terms. | Apply or reconcile the credit according to the parties’ records and process. |
What to connect on a credit note
Include a unique credit-note reference, date, customer, related invoice reference, reason and amount adjusted. Explain whether the credit is full or partial and how it affects the remaining balance. If a tax adjustment is involved, use the treatment and process applicable to your jurisdiction; a generic guide cannot determine it.
Invoice to credit note workflow
- Locate the issued invoice and confirm which line or amount needs an adjustment.
- Agree or document the reason, then create a separate credit note that references the original invoice.
- Reconcile the credit against the unpaid balance or account record; keep the original invoice and adjustment together.
Do not silently overwrite an invoice already sent to a customer. The appropriate correction process depends on the transaction and local rules.
Example
A supplier invoices a customer $1,000 for a project. The parties later agree that a $100 line was not supplied. The supplier documents a $100 credit against the original invoice and keeps the original invoice and adjustment connected. Depending on how much the customer has paid, the remaining balance or customer credit will differ.
Create a credit note for an adjustment and an invoice for a billed transaction.
Frequently asked questions
Does a credit note replace an invoice?
Usually not. A credit note documents a credit, reduction or correction linked to an earlier invoice rather than replacing the whole billing record.
When should I issue a credit note?
When you need to document a refund, return, pricing error or agreed reduction against an issued invoice. Reference the original invoice clearly.
General information only—not legal, tax or accounting advice. Requirements can vary by jurisdiction, transaction and agreement. Confirm what applies to your situation.