Add or edit a credit note for a customer
Add a credit note for one of your customers that is not linked to a sales invoice you have already created for them - you can allocate the credit note to an invoice later. You can also use these instructions for editing Draft or Awaiting Approval credit notes already created, including those created directly from an invoice. If an invoice already exists in Xero for your customer and you want to credit that invoice specifically, follow these instructions for adding a credit note to an invoice.
Add a new credit note
- In the Accounts menu, select Sales.
- Click the arrow next to +New, then select Credit Note.
This will create a new empty credit note that you can complete for any customer.
If you want to credit a specific invoice you can create a credit note directly from the invoice - it will be automatically completed for you with the details and amount outstanding from the invoice.
Enter the details of the credit note
Entering a credit note is very similar to entering an invoice - credit notes use similar fields and the same 'grid' for entering line items.
All fields - except Reference, Item and tracking fields - are mandatory if you want to approve the credit note, otherwise you can save it as a draft to continue working on later. Only when the credit note is approved can it be applied to an invoice or included in reports.
Enter or edit
Use these same fields to edit an existing credit note that is draft, awaiting approval or awaiting payment.
Enter or edit the details of who the credit note is for.
To edit the details of a Draft or Awaiting Payment credit note, click on the credit note under the Draft or Awaiting Payment tab.
To edit the details of an Awaiting Payment or Paid credit note, click on the credit note under the Awaiting Payment or Paid tab then use Invoice Options/Credit Note Options drop-down to edit.
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 Sales 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 To 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 credit note that is for a Contact whose name has been changed or merged in Xero since you added an invoice, you will still be able to allocate the credit note to that Contact's invoices. Note: if the contact has been archived you must enter a credit note directly from the invoice.
- You can search for credit notes (and invoices) 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 an invoice it will show this date as the date of credit.
Credit note number
The automatically generated credit note number that automatically displays in this field is the next one in the sequence you have set up to use on invoices and credit notes.
- The credit note number sequence is shared with invoices so each credit note you create will have the next number after the previous credit note or invoice you've created.
- You can change the credit note number on the credit note but it must be unique.
- The automatic numbering sequence will take this new credit note number into account when it generates the next number for the next new credit note or invoice generated (if the new number belongs in the sequence).
- If a credit note is deleted or voided the credit note number stays with it, however you can reuse the number on a deleted credit note.
- You can free-text search in Sales by the number you've used on a credit note once you've created and saved or approved it.
The reference field is optional. You may choose to use the same reference on the credit note and subsequent invoice as a way of tying the 2 together (although once either the credit note or invoice is approved you can't add or edit the reference number). Enter a combination of letters and/or numbers. As with the credit note number, you can free-text search in Sales by the reference you've used on a credit note once you've created and saved or approved it.
The Branding field will only appear if you have more than one branding theme within your organization.
Choose the branding you would like to apply to this invoice from the drop-down list. If you've set up a default theme for this contact on the Contacts screen, this theme will show automatically at the top of the drop-down list.
If your organization is on a Premium Business Edition with multi-currency pricing plan, 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.
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 the 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.
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, just the item as it's displayed on this credit note.
- If a suitable item does not exist in the list, you can add one directly using the '+New item' option at the top of the list.
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 your 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 invoices 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.
The tax to be applied to the line item. By default this will be the tax rate assigned to the account you've chosen for this item from the chart of accounts. You can change the tax rate for this credit note if required. The total amount of tax will be shown in the credit note total, calculated as inclusive or exclusive depending on the treatment you chose for the credit note (above). For the print version of the credit note you can choose to show the tax rate used on each line item or not, on the Invoice Settings screen.
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.
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 invoices 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 invoices are all listed together on either of these tabs and credit notes will be identified with a 'CR' icon.
- A draft credit note can be approved, deleted, printed or emailed from the credit note itself or from the tab that it's on.
- Credit notes can be emailed with invoices, from the Sales tabs.
- A credit note can be saved in draft as long as it has a Contact and Credit Note #, however if you choose the 'Save & submit for approval' option, all fields (except Reference, Item and your 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 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 invoice 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 invoices or have a cash refund applied.
If you have other customer 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 invoice for this customer in Xero, you will be prompted to allocate this credit note to that invoice. You can allocate some or all of the credit note to one or more invoices or not at all by canceling the allocation screen.
- If you approve and allocate the full amount of the credit note to an invoice, 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 invoices for the customer, you choose not to allocate the credit note to an existing invoice, or you allocate only some of the credit note to an invoice thereby leaving some part of the credit note unallocated (i.e. still Awaiting Payment). The credit note will be added to the credit this customer has with you and can be held or applied to invoices that you've already raised or future invoices as appropriate.
- Credit notes and invoices 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 an invoice, that invoice 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 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.
- 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 customer 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 Sales balance accordingly.
Any new details entered will be cleared and not saved.
Enter a note specific to this invoice at any time in History & Notes.
Once the credit note is entered into Xero, it is saved in Xero with the sales invoices and can be viewed and processed as required:
- Search for credit notes
- Add or edit a customer credit note
- Edit customer credit notes awaiting payment
- Edit paid customer credit notes
- Delete or void a credit note
- Print a credit note
- Email a credit note
- Allocate credit to an invoice
- Apply a cash refund
Click into a credit note on the Draft, Awaiting Approval or Awaiting Payment tab to edit it.
Enter or edit
Credit note fields
Update an existing draft or awaiting approval 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.
Print or Email a 'Draft' credit note
Credit notes are sent to your customers as PDFs. You need to save a credit note before you can print or email it. As long as the credit note has a Contact name and a credit note number it can be saved as a draft.
- Click the Email button to email a credit note to one or more recipients.
- 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 or email 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 or emailing to pick up the changes.
- Credit notes printed or emailed 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 view them again if you need to.
- 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.