Add or edit a credit note from a supplier
Add a credit note for a supplier that's not linked to a bill you've already entered from them. You can allocate the credit note to a bill later. You can also edit draft, awaiting approval or awaiting payment credit notes (including those added directly from a bill). If a bill already exists in Xero and you want to add credit to that bill, follow these instructions for adding a credit note to a bill.
Add a new credit note
- In the Accounts menu, select Purchases.
- Click the arrow next to +New, then select Credit Note.
This will create a new empty credit note that you can complete for any supplier.
If you want to credit a specific bill you can create a credit note directly from the bill - it will be automatically completed for you with the details and amount outstanding from the bill.
Enter or edit
Use these same fields to edit an existing credit note that is draft, awaiting approval or awaiting payment.
Enter the details of the credit note
Entering a credit note is very similar to entering a bill - credit notes use similar fields and the same 'grid' for entering line items.
All fields, except Reference, Item, Description and tracking fields, are mandatory if you want to approve the credit note. Alternatively, you can save it as a draft to continue working on later. Only when the credit note is approved can it be applied to a bill or included in reports.
From, date & reference fields
Only the From field is mandatory if you want to save the credit note as a draft.
Enter or edit the details of who the credit note is from. Only credit notes that haven't had any payments or bills allocated against them can have these fields edited (that is, credit notes that are Draft, Awaiting Approval or completely unpaid on the Awaiting Payment tab). If you're entering a credit note issued before your conversion date from a previous system, make sure the date is before your conversion date so that this credit note can be associated with your Accounts Payable conversion balance.
Select or enter the organization or person you are crediting.
- If you enter a new name here, that person or organization will be added to your contacts in Xero. When you type a name that isn't in your list of contacts, NEW appears in the From field.
- If a contact name has been changed, only the new name will be available to choose. If you are editing a credit note, the original contact's name will be retained even though it may have been changed or archived since. If you are entering a new credit note that is for a contact whose name has been changed or merged in Xero since you added a bill, you will still be able to allocate the credit note to that contact's bills. Note: if the contact has been archived you must enter a credit note directly from the bill.
- You can search for credit notes (and bills) for this contact in Xero once the credit note has been entered and saved or approved.
This defaults to today's date. You can change the date. This date will be used in any reports and statements that include credit notes, and when you apply this credit note to a bill it will show this date as the date of credit.
The reference field is optional and you might like to use it to record a reference number provided on the credit note or other reference you want to add for the credit note you’ve received. You can free-text search for what is entered in this field once the credit note is created. You may choose to use the same reference on credit notes and bills as a way of tying the 2 together (although once either the credit note or bill is approved you can't add or edit the reference number). Enter a combination of letters and/or numbers. You can free-text search in Bills by the reference you've used on a credit note once you've created and saved or approved it.
The overall total of the credit received (even though you might break this up into different amounts on different lines if you want to assign the credit note to different accounts).
If you have a Business Edition plan with multi-currency, you can select a foreign currency that you've already added, or click Add currency to add a new one. You can also edit the exchange rate if required.
Credit note details - item, price, account, tax
Delete or add as many lines as needed to create your credit note.
Use the credit note grid to enter the details of the transaction using as many line items as required (there must be at least one). If you need to, you can use different inventory items, accounts, tax rates, tracking options and prices (positive, negative or zero amounts) on different lines as necessary.
Drag and drop the item lines to reorder them. Unused lines are removed from the grid when you save the credit note. If you need more later, click Add new line. You can delete them using the X icon.
Only lines with data appear on the PDF credit note.
Choose how to apply tax to the transaction:
If the item has sales tax, select:
- Tax Exclusive to add the tax to each line item amount.
- Tax Inclusive to include the tax in each line item amount. Each item shows as tax exclusive when approved. Xero automatically splits out the tax component for reporting.
- Select No Tax if you don't want to apply tax to each line item amounts.
Find out more about transaction display and tax rates on your Sales Tax Summary.
Item (from your inventory list)
If you have set up inventory items in Xero you can choose an item from the inventory list. Doing this will automatically populate your credit note fields, using the information you have saved against the inventory item. If you enter a Tracked Inventory Item in the credit note, the value of the Inventory Item will update in the Item record.
To search for an item that starts with or includes certain characters, type the characters in the Item box, then select the desired item from the list of possible matches. For example, type 'Ca' or 'CH' to search for 'CAKE-CHOC'.
- If you don't use inventory items, just leave the field blank and move on to edit the other fields as normal.
- The list displays the inventory item codes and names you entered for each item.
- Once you have chosen a code and the fields have been populated with the item details, you can edit any of the details. Any changes will not update the inventory item itself, just the item as it's displayed on this credit note.
- If a suitable item does not exist in the list, click New item to add it.
- If you're using an inventory item and want the item code to display on the PDF bill, enter it into the description.
Your own description of the item (use additional lines for each item if required) - enter as much or as little text as you like to describe your goods or services being credited. The description box will expand while you are editing, letting you type as much as you need. You may also use 'Enter' to apply line breaks within a description field.
If you wish to enter a text-only line, for example, a heading to separate out items into categories like labor and materials, enter text into the description field and leave all other fields blank.
If you're using an inventory item and want the item code to display on the PDF credit note, enter it into the description.
Everything you enter will appear on the print version of the credit note and will add pages to the PDF as it needs to.
Enter or edit the quantity (if applicable) for the line item.
Price for the line item – you can enter positive, zero or negative amounts (as long as the overall credit amount is not negative). The overall total amount displayed for the credit note will take into account all line items and the tax options chosen.
Select the account (from your Chart of Accounts) that the item is to be assigned to.
You can use any account in your chart of accounts for credit notes, whether the same accounts you'd use for bills or not. Your accountant or bookkeeper may have specific accounts that they want you to process credits through.
If a suitable account does not exist in the list, you can add one directly from here from here using the '+Add new account...' option at the top of the account list. This adds a new account to the chart of accounts and the information to be completed is the same as when you are creating an account directly in the chart of accounts.
If you are editing a credit note and the account previously used has been deleted or archived it will no longer be available to select.
By default, No Tax will show in your credit note. To include or exclude tax in your credit note, select either option in the Amounts are field. The Tax Rate column will only show in your credit note if you have chosen to include or exclude tax.
A column for each tracking category will display if you have set them up for this organization. If you want the items on your credit note to be tracked, choose the required option(s) from the one or two tracking categories displayed. If you don't want to use tracking on this credit note (or a particular line item) just leave it blank or choose '(None)'.
If a suitable tracking option does not exist in the list, you can add one directly from here from here using the '+Add new ...' option at the top of the list. Enter the new option for the tracking category and from now on it will appear in the list of options for this category when you are entering or editing any other transactions or running reports.
You can also add more options via Settings > General Settings > Tracking.
Once tracking is applied, the item will be included in any reports that are filtered by the tracking options you have chosen.
If you are editing a transaction and the tracking category or option previously used has been deleted it will no longer be available to select.
Rounding may be applied by Xero if the amount you have actually been credited differs slightly to the total calculated by Xero if you break up the credit note into multiple accounts or use different tax rates. Rounding amounts are assigned to the Rounding account in the Chart of Accounts.
Options for saving and approving a credit note
You can save the credit note to continue working on it later, submit it for approval or approve it. Once the credit note is saved or approved, you can still edit it. Once the credit note has any payments or bills allocated against it, you will only be able to edit the contact address details, the account and tracking code.
Save options on a credit note
- There are options for saving a credit note if you don't want to approve it right away:
- Save as draft
- Save (continue editing)
- Save & submit for approval
- All of these options will save the credit note as a draft and it will appear on the Draft tab or the Awaiting Approval tab (if you chose the 'Save & submit for approval' option). Credit notes and bills are all listed together on either of these tabs and credit notes will be identified with a 'CR' icon.
- An approved and Awaiting Payment credit note may also be edited (provided it doesn't have any payments or bills allocated against it). Once you have made your changes, click the 'Update' button to save.
- A draft credit note can be processed (that is, approved, deleted, printed) from the credit note itself or from the tab that it's on.
- A credit note can be saved in draft as long as it has a contact, however if you choose the 'Save & submit for approval' option, all fields need to be completed.
- You need to save a credit note as a Draft (or any changes to an existing credit note) before you can print or email it.
- Only the Save button is available if you are editing an Awaiting Approval credit note.
- A draft credit note can be fully edited and printed, just the same as a draft bill can.
Save/Save & return to list
If you are adding a conversion credit note, save it and return to the list.
Approve the credit note
Click Approve to approve the credit note so that it's available to apply to one or more bills.
If you have other supplier credit notes to add, click the arrow to the right of the Approve button and select Approve & add another.
- If there is already an Awaiting Payment bill for this supplier in Xero, you will be prompted to allocate this credit note to that bill. You can allocate some or all of the credit note to one or more bills or not at all by canceling the allocation screen.
- If you approve and allocate the full amount of the credit note to a bill, the approved credit note will essentially be 'used up' and saved to the Paid tab.
- The approved credit note will be saved to the Awaiting Payment tab if: there are no Awaiting Payment bills for the supplier; you choose not to allocate the credit note to an existing bill; or you allocate only some of the credit note to a bill, thereby leaving some part of the credit note unallocated (that is, still Awaiting Payment). The credit note will be added to the credit you have with this supplier and can be held or applied to bills that you've already entered or future bills as appropriate.
- Credit notes and bills are all listed together on the Awaiting Payment and Paid tabs and credit notes will be identified with a 'CR' icon. If the credit note is allocated to some or all of a bill, that bill will display on either tab with an icon indicating that a credit note is attached.
- Approved credit notes can be emailed or sent as a PDF.
- Awaiting Payment credit notes will display in reports and on graphs for the account or contact.
- An approved credit note can be voided or printed from the credit note itself or from the tab that it's on. For best accounting practice you should only void a credit note that has not been sent or issued externally. You should speak to your accountant or bookkeeper on how best to deal with this situation.
- The Advisor user role can approve credit notes with a date before the conversion date in the specific situation that requires a balance entered for a supplier during conversion to be partially credited (credit notes can't be entered during the setup process). If you enter a credit note with a date before your conversion date, make sure you do this before going to reduce the Accounts Payable balance accordingly.
Any new details entered will be cleared and not saved.
Enter a note specific to this credit note at any time in History & Notes.
Once the credit note is entered into Xero, it is saved in Bills with the other bills and credit notes and can be viewed and processed as required:
- Search for credit notes
- Add or edit a supplier credit note
- Edit supplier credit notes awaiting payment
- Edit paid supplier credit notes
- Delete or void a credit note
- Print or email PDF credit notes
- Allocate credit to a bill
- Apply a cash refund
Click into a credit note on the Draft, Awaiting Approval or Awaiting Payment tab to edit it.
Edit a draft or awaiting approval credit note
Click into a credit note on the Draft, Awaiting Approval or Awaiting Payment tab to edit it.
Credit note fields
Update an existing draft or awaiting approval supplier credit note by following the same instructions for adding a new credit note above.
Update an awaiting payment credit note when you're in the credit note, using Credit Note Options > Edit.
Whether the credit note has some empty fields or is fully complete, you can change any aspect of it - from the name and number to any of the items on the credit note grid.
- Click into any field, including fields in the grid to make the required changes or select a different account, tax or tracking option.
- Add and delete more lines as necessary.
- The same Save and Approve buttons that display for a new credit note are available when editing a credit note.
Print or Email a 'Draft' credit note
Supplier credit notes you've entered can be opened and printed as PDFs. You need to save a credit note (or changes to it) before you can print it. As long as the credit note has a contact name it can be saved as a draft and printed.
- Click on the Print PDF button to open the credit note as a PDF if you'd like to use this as a preview of what you're emailing, or to print the credit note.
- You can print more than one Draft credit note at once from the Draft tab.
- The credit note will have the word 'Draft' printed on it, otherwise any other information you've entered onto the credit note will be displayed as for a complete and approved PDF credit note.
- If you make any changes to the Draft credit note, make sure you save it again before printing it to pick up the changes.
- Credit notes printed as drafts are not marked as sent so if you want to keep a specific record of this add your own note in the History and Notes.
Credit Note Options
Use the Credit Note Options button for a list of actions you can perform on credit notes that are draft, awaiting approval or awaiting payment.
- Deleted credit notes are removed from the
Draft or Awaiting Payment tab. You can find them by going to the All tab and clicking Search.
View voided or deleted invoices or bills
- You can reuse the credit note number generated for a deleted credit note only – the number will remain on the deleted item as well as on the new item so that every number in the numbering sequence can be accounted for.
If you are editing the credit note you can view the changes that have been tracked for the credit note in History & Notes. History is not recorded for a credit note until it has been saved the first time. Click on the arrow next to 'History' to reveal the full history for the credit note.