Definition
A credit note (also called a credit memo) is a commercial document a seller sends to a buyer to lower or cancel the value of a previously issued invoice. It records a negative amount against the customer's account, correcting what they owe rather than requesting a new payment.
When it is issued
- Returns: the buyer sends goods back and is credited for them.
- Overcharges: an invoice listed the wrong price or quantity.
- Corrections: tax, discounts, or line items were recorded incorrectly.
- Damaged or short deliveries: part of the order was unusable or missing.
Credit note vs invoice vs refund
An invoice increases what a customer owes; a credit note decreases it. A credit note is not the same as a refund: it adjusts the account balance and can offset future invoices, whereas a refund returns actual money to the buyer. A business may issue a credit note first, then process a refund only if no outstanding balance remains.
Credit notes keep accounting records accurate and auditable. Tools like Invoice Max Pro can generate one directly from the original invoice.