Credit Note

A formal document issued by a seller to a buyer reducing the amount owed on an original invoice, typically used for returns, overcharges, cancellations, or goodwill adjustments.

Credit notes maintain clean financial records when purchases are partially or fully reversed. Issuing one correctly ensures VAT records stay accurate, protects cash flow visibility, and maintains professional client relationships.

A founder delivers a project but the client disputes one element worth £400. Rather than issuing a refund directly, she issues a credit note for £400 plus VAT, which the client can apply against their next invoice, keeping the relationship intact and records clean.