Credit Note

When to issue a credit note to a client?

A credit note is a type of document that businesses typically provide a customer when the amount on an invoice is disputed or incorrect. This might be due to an admin error, or because the customer requires a full or partial refund.

In many cases an updated invoice might suffice, but those using time-saving online accounting software will be more familiar with credit notes as a means of cancelling out debt owed. Issuing a credit note means both parties have a clear record of the discount.

Here are a couple of scenarios of when you might want to issue a credit note to a client.

An unpaid invoice you’ve issued has an incorrect amount

Let’s say that before your payment has come in, you realise you’ve mistakenly added an extra zero and issued a sales invoice for £1,000 instead of £100.

This is where it’s practical to use a credit note instead of a refund, because you technically can’t issue a refund of money that you never received in the first place.

Instead, you can raise and issue a credit note for £900, and your client will receive the credit note documenting the error.

Your accounts and that of the client should now correctly reflect a debt of £100 after posting the original invoice for £1000 and the £900 credit note.

A customer has paid a proportion of the invoice but wants to pay less than the total

Imagine that you’ve performed a service for a total of £1,000, but the client is unhappy and believes that they should pay you no more than £800.

If you agree and wish to lower the total of the invoice to £800, you should issue a credit note for the difference of £200.

If you are an Accounting Wise  client there are further instructions on how to issue credit notes within your accounting software app in My A-Wise.

Get an accountant

Getting an accountant is a great way to keep on top of your finances and make sure that you are raising documents correctly. They’ll remind you of important tax dates and payments due, show you ways of keeping your accounts in excellent shape, advise you on allowable expenses and how to report them so you’re as tax efficient as possible.

They can help you with things like estimating how much tax and NI you’ll need to pay every six months or quarterly for VAT. They’ll also help to ensure you’re not forgetting a payment on account, which catches many people out every year.

Call us on 0330 113 8442 or request a call back to find out more.

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