Add a credit note to reduce the amount owed to you by a customer, or that you owe to a supplier. A credit note remains in Awaiting Payment until it has been fully applied to an invoice or bill.
A credit note is very similar to a sales invoice or bill, except it reduces the amount owed to you by a customer, or that you owe to a supplier. It's raised against a customer or supplier and remains in awaiting payment until it has been fully applied to an invoice or bill.
In common scenarios, credit note are raised directly against a customer or supplier, allowing the customer or supplier to be held in credit until a future invoice or bill is raised.
Credit notes can be added in 3 ways in Xero, depending on how you need to issue or record the credit. You can:
- Add a credit note directly to an existing sales invoice or bill
- Add a new credit note for a customer or supplier
- Copy an existing credit note.
Adding, editing, copying, approving, deleting and voiding credit notes is the same for both a sales invoice and a bill. If you're not sure when or how to use credit notes, some common scenarios are provided below as well.
Where do I add a credit note from?
Credit a specific invoice or bill, or part of it
On an awaiting payment invoice or bill, from Invoice Options or Bill Options, select Add Credit Note.
- This creates a sales credit note or purchases credit note with the same information as the invoice or bill, with the credit amount the same as the outstanding amount.
- You can use this option to credit an entire invoice or bill, or one that has part payments or other credit notes already applied to it.
- Even if the customer or supplier already has credit (i.e. other credit notes that have not yet been allocated) you can add a new credit note for this invoice or bill.
- If you would rather use up the existing credit that the customer or supplier already has, use the link that is displayed on the Sales or Purchases awaiting payment invoice or bill.
- Apply a credit note to an invoice or bill that's in a locked period as long as the credit note is not in the locked period as well.
- You can only add credit notes to invoices or bills that are Awaiting Payment. Refer to our common credit note scenarios to see how you might handle a situation where credit is required for a paid invoice or bill.
Add a new credit note to a contact (regardless of their current invoices or bills)
Once approved, you can allocate some or all of this credit note to an invoice or bill already in Xero, or save it for later if you don't have any invoices or bills yet.
You can allocate more than one credit notes to a single invoice or bill.
Finding, editing and managing credit notes
Once a credit note has been added (whether it's allocated to a sales invoice or bill or not), its status will determine what you can do with it. As with invoices or bills, credit notes can have a status of Draft, Awaiting Approval, Awaiting Payment, Paid, Deleted or Voided. They will be displayed on the tab that matches its status along with invoices or bills and are identified with a 'CR' icon. If a credit note is allocated to an invoice or bill, it will display an icon showing that a credit note is attached to it.
- Search for a credit note using Contact name, credit note number, reference or date. Click Search to show the search panel. You can search on the All tab for any credit note or from any of the status tabs for credit notes of just that status (e.g. Awaiting Payment).
- You can allocate approved credit notes to invoices or bills. They're included in reports. Credit notes are approved if they have an Awaiting Payment or Paid status. Credit notes from a locked period can be allocated to an invoice or bill that is not in a locked period and vice versa - the date of allocation (and therefore journal entry) will be the latter of the invoice, bill or credit note.
- An Awaiting Payment credit note is one that is waiting to be allocated to an invoice or bill - either in full or in part, or waiting to be refunded.
- A Paid credit note is one that is fully allocated to an invoice or bill or has had a full cash refund applied.
- You can delete and edit unapproved credit notes.
- You can void approved credit notes. You can view but not edit a voided credit note.
- If a credit note that is awaiting payment, or is fully allocated, or is cash refunded is voided, it will be reversed on the invoice or bill (i.e. the credit allocation will be removed) before being voided. The act of removing a credit allocation from a paid invoice or bill will return it to an Awaiting Payment status.
- Credit notes display on graphs are displayed as the net value of the total amount owing or owed or the net value for a customer or supplier. Where a customer or supplier is in credit, the credit balance alone will be displayed.
- One or more credit notes can be created for a Contact without being applied to an invoice or bill, however it is good practice to use up the existing credit a customer or supplier has if you enter a new one for them.
- You can apply a cash refund to an awaiting payment credit note.
- You can only allocate a credit note to an invoice or bill for the same Contact (even if that Contact has had a name change or has been merged or archived in between creating the credit note, invoice or bill).