Add a credit note to a sales invoice
You can add a credit note directly from a sales invoice to credit some or all of that invoice, and print or email it to your customer. If you want to issue a credit note to a customer separately from an invoice, follow these instructions for adding a new credit note.
Add a credit note to an invoice
- In the Accounts menu, select Sales.
- Select the Awaiting Payment tab.
- Select the invoice to add the credit note to.
- Click Invoice Options, then select Add Credit Note.
- This will create a credit note for the customer shown on the invoice and it will be applied directly to this invoice.
- The Awaiting Payment invoice may already have payments or credit notes applied to it.
- The credit note can be for some or all of the amount outstanding on the invoice.
- Only invoices that have the status Awaiting Payment can have credit notes applied to them.
- You can also add a new credit note independently if you haven't issued the invoice yet or want one credit note to be allocated to several different invoices.
Edit the details of the credit note
Fields from the invoice 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 invoice.
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 invoice - whether this is the full amount or the amount left after payments or other credit notes have already been applied.
The credit note will be to the same customer name as the original invoice and can't be edited, however you can click on the customer's name to view their 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 invoice and credit notes will display on reports and statements on this date.
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 (Settings > General Settings > Invoice Settings).
- The credit note number is not specifically related or tied to the invoice, it's simply the next in the sequence.
- 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 invoice number stays with it.
- 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 on both invoices and credit notes however if you've used a reference on the original invoice this will be copied onto the credit note that you're creating for that invoice. 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 invoice. 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.
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, description, price, account, tax
The information from the invoice 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 (i.e. not from an invoice) 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 invoice, the item will display on the credit note and can be edited.
- If you haven't used some version of the original invoice number as the credit note number or reference you might like to add the invoice number into the description field so that if you print and send or email the credit note to your customer it will be clear to them which invoice is being credited.
- The credit note amount will default to the amount remaining to be paid on the invoice that you added the credit note from - if you leave the credit note to be the full amount outstanding on the invoice, when you approve the credit note, the remaining invoice amount will be credited and the invoice will move to the Paid tab.
Note: if you had invoiced several items at a unit price on the invoice (e.g. 3 @ 15.00), it is just the one total amount that will be displayed on the credit note (i.e. 1 @ 45.00) or amount remaining.
- You can change the overall amount of the credit note to be more or less than the invoice amount as required. Enter the amount to be credited in the 'Unit Price' field (either tax inclusive or tax exclusive depending on the credit note tax option).
- If the overall credit note amount is less than the amount outstanding on the invoice, the whole credit amount will be applied to the invoice and the invoice 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 invoice, the invoice 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 customer will be created to the value of the credit note balance, which you can use against another invoice you raise for them in future.
- The account the credit note will be coded to will be the same account as used on the invoice. You can change the account as necessary if you want to process credit through a different account than the invoice - your accountant or bookkeeper might 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 invoice 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 invoice 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 invoice 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 invoice, the remaining invoice amount will spread across the original line items on the invoice. 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 invoice that you've created the credit note from will display in the subtotal - click on the invoice number to return to the original Awaiting Payment invoice. 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 an invoice, creating a new credit note, or editing a draft credit note you've already saved).
Once the credit note is saved or approved, you can still edit it.
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 an invoice, 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 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 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), Credit Note # 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 or email it.
- Draft and awaiting payment credit notes can be fully edited and printed, just the same as invoices 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 invoice 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 invoice 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 invoice 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 invoice for this customer 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 invoice). The invoice that the credit note was allocated to also displays 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. They can also be edited.
- 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.
- A user with 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 invoice (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.
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