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:
Information required | |
---|---|
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. |
Account number | 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. |
Goods total | 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. |
Do I need to keep a copy of all credit notes?
Copies of credit notes should be kept for at least six years. They can be stored electronically.
Interactive tutorial: Recording income
The step-by-step guide takes you through:
- Types of income
- Documents used when goods or services are sold
- Different payment methods
- VAT – including limits and registration.
Click on the Start button below to read more.
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