Preparing credit notes is a process which many businesses will need to do, for their own and their customer’s records. Credit notes vary in their content and style and there is no set standard. However, the style of a credit note issued by a business is usually very similar to their invoices.
What is a credit note?
A credit note is a document which is sent by a business to its customers – it shows the customer the amount to be paid has been reduced.
It can be issued if for example a customer:
has been incorrectly charged
has returned goods
cancels the order.
The credit note should be checked by the customer, along with the calculations.
When do I need to issue a credit note?
A credit note is issued to customers when:
goods or services have been returned
an error has been made in an invoice – eg a customer has been overcharged
a customer was not happy with a product or service they have received.
A credit note can be issued on paper or electronically.
What information must I put on a credit note?
The following pieces of information should appear on any credit note you issue:
The details of the business issuing the credit note
This includes the company name, address, phone number and email address.
VAT registration number
If the business is VAT registered, their unique VAT registration number must be shown.
The customer’s name and address
Credit note number
This must be unique and must follow on from the last credit note.
The account is the business’s reference for their customer
Your reference number
The reference number relates to a purchase order (a reference could also be included for a delivery note).
Date / Tax point
The date or tax point (also known as the time of supply) will often be the same, but if not the two dates should be clearly shown.
A clear description of each type of goods or services returned
The unit price, quantity, rate of VAT and rate of discount should be shown clearly for each item. Also show the total amount (excluding VAT) for each item, and the currency.
The net total of all goods or services credited, VAT and total including VAT.
An explanation as to why a credit note has been issued
For example incorrect price, incorrect item, incorrect quantities.