Add a credit note to a bill
You can add a credit note directly from a bill to credit some or all of that bill. If you want to add a credit note that you've received separately from a bill, follow these instructions for adding a new credit note.
Add a credit note to a bill
On any bill awaiting payment, choose 'Add Credit Note' from the Bill Options button.
You can't add credit notes to bills generated as part of a pay run.
- This will create a credit note for the contact shown on the bill and it will be applied directly to this bill.
- The bill may already have part payments or credit notes applied to it.
- The credit note can be for some or all of the amount outstanding on the bill.
- Only bills that have the status Awaiting Payment can have credit notes applied to them.
- Credit notes can't be applied to pay run bills or pay run payslips.
- You can also add a new credit note independently if you haven't issued the bill yet or want one credit note to be allocated to several different bills.
Edit the details of the credit note
Fields from the bill you're crediting will be 'copied' into a new credit note. The credit note will be a draft when first created and you'll need to approve it in order to apply it to the bill.
You can leave the credit note as it is or make changes as necessary - the fields and options for editing a credit note are the same as for adding a new credit note. You'll need to enter at least a date before you can save or approve the credit note. By default the credit note will be for the outstanding amount of the original bill - whether this is the full amount or the amount left after payments or other credit notes have already been applied.
To, date & reference fields
To and Date fields are mandatory.
The credit note will be from the same contact name as the original bill and can't be edited. You can click on the name to view contact details. If you do this, you'll be leaving the credit note screen so if you want to save changes, use the 'Save (Continue editing)' option on the Save button.
Enter a date for the credit note. The date any amounts are credited will display on the original bill and credit notes will display on reports and statements on this date.
The reference field is optional on both bills and credit notes however if you've used a reference on the original bill this will be copied onto the credit note that you're creating for that bill. You can edit or delete the reference number already supplied if you don't want one or would rather add a different one to the bill. 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.
Credit note details - item, description, price, account, tax
The information from the bill you're crediting will already be displayed in the relevant fields on the credit note and you can edit any field as necessary.
- At this stage the credit note has not been saved so any of the fields in the 'grid' can be edited. Just as you would if you were entering a new credit note (not from a bill) you can change the item, description, quantity, price, account, tracking and add or remove lines as necessary from the credit note. Tab between fields on the grid or stretch and shrink columns to see more or less in a similar way to using a spreadsheet. If an inventory item was used on the original bill, the item will display on the credit note and can be edited.
- The credit note amount will default to the amount remaining to be paid on the bill that you added the credit note from.
- If you had entered a bill by recording several items at a unit price (for example, 3 @ 15.00), just one total amount will display on the credit note (for example, 1 @ 45.00).
- You can change the overall amount of the credit note to be more or less than the bill amount as required. Enter the amount to be credited in the 'Unit Price' field (either tax inclusive or exclusive depending on the credit note tax option).
- If the overall credit note amount is less than the amount outstanding on the bill, the whole credit amount will be applied to the bill and the bill will remain in an Awaiting Payment status, showing the amount credited.
- If the overall credit note amount is greater than the amount outstanding on the bill, the bill will reduce to 0.00 by using up enough of the credit note to cover the outstanding balance and move to the Paid tab. A new credit note for this contact will be created to the value of the credit note balance, which you can use against another bill you receive from them in future.
- The account the credit note will be coded to will be the same account as used on the bill. You can change the account as necessary if you want to process credit through a different account than the bill - your accountant or bookkeeper may advise you to do this. Xero allows accounts in your chart of accounts to have debit or credit balances.
- The same tax rate as applied to the original bill for the line item (based on the account the item is coded to) will be applied to the amount entered for the credit note and shown in the sub- and final totals for the credit note, and you can change this as required.
- If you use Tracking and had assigned a tracking category to the bill line item, the same category will display on the credit note which you can change or remove as necessary.
- As with adding a new credit note you can delete or add to the line items already presented on the credit note. Delete the line items for amounts that are not being credited however you must leave at least one.
- If the original bill was created with multiple line items, each line item will be available on the credit note to enter an amount to be credited. If an amount has already been paid or credited on the original bill, the remaining amount will spread across the original line items on the bill. If you want to apply the credit to a specific line item, delete those you don't want and adjust the amount on the remaining line items accordingly.
- The bill that you've created the credit note from will display in the subtotal - click on the bill link to return to the original bill. Any changes you've made won't automatically be saved.
Once you're happy with the credit note, you can save or approve it (save and approve options are the same whether you're creating a credit note from a bill, creating a new credit note, or editing a credit note you've already saved).
Once the credit note is saved or approved you can still edit it.
Save options on a credit note
There are options for saving a credit note if you don't want to approve it right away. When you first create the credit note from a bill, it will be in draft.
- Options for saving a credit note are:
- Save as draft
- Save (continue editing)
- Save & submit for approval
- Update (on approved Awaiting Payment credit notes)
- All of these options will save the credit note as a draft and it will appear on the Draft tab, the Awaiting Approval tab (if you chose the 'Save & submit for approval' option), or the Awaiting Payment tab (if you are updating an approved credit note). Credit notes and bills are all listed together on either of these tabs and credit notes will be identified with a 'CR' icon.
- A draft credit note (i.e. with a status of Draft or Awaiting Approval) will not be applied to the bill from which it was created. It will be unallocated and you will need to separately approve it and allocate it to the bill. If you want to apply the credit note to the bill immediately, you must approve it.
- A draft credit note can be processed (i.e. 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 (this is automatically populated and can't be removed) and Date, however if you choose the 'Save & submit for approval' option, all fields (except Reference, Item and tracking options) 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 it.
- A draft credit note can be fully edited and printed, just the same as a draft bill can.
- Only the Save button is available if you are editing an Awaiting Approval credit note.
- The Update button is available to save changes you have made on an Awaiting Payment credit note.
Approve the credit note
Approve the credit note to apply the amount of the credit note to the bill that you're creating the credit note for.
- If the 'Remaining credit' amount is 0.00 and you approve the credit note, the entire amount will be applied to the bill and the credit note will have a status of 'Paid'.
- If the 'Remaining credit' amount is more than 0.00 and you approve the credit note, the amount that was outstanding on the bill will be credited and the difference between that and the final credit note amount will be created as a new credit note with a status of 'Awaiting Payment'. You can apply this new credit note to another bill received from this contact as appropriate.
- Approved credit notes are saved to the Paid tab or Awaiting Payment tab (depending on whether the full credit amount was used on the bill). The bill that a credit note is allocatwed to also displays an icon indicating that a credit note is attached.
- Approved credit notes can be printed as a PDF.
- Awaiting Payment credit notes will display in reports and on graphs for the account or contact. They can also be edited if necessary.
- An approved credit note can be processed (i.e. 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.
- You need to have all fields completed before a credit note can be approved.
- The Advisor user role can approve a credit note with a date before the conversion date if the credit note is being applied to an historical bill (credit notes can't be entered during the setup process) - in this case make sure you update your conversion balances.
Any new details entered will be cleared and not saved.
Enter a note specific to this credit note at any time in History & Notes.
Only users who have the Standard or Advisor user role can access credit notes.
Once the credit note is entered into Xero, it is saved in Xero in Purchases with the other bills and credit notes and can be viewed and processed as required:
- Search for credit notes
- Edit, delete or void credit notes
- Print PDF credit notes
- View and manage credit notes in different statuses (i.e. from the tab they're on).