There are two types of credit notes:
- Those issued for incoming payments
- Those issued for outgoing payments
What this therefore means is that a credit note can be both issued and received by a business. For small business owners, both types are common.
There are several situations in which a credit note should be issued. Some common cases when to issue a credit note are the following:
- To correct any invoice mistakes (e.g., invoice amount overstated, the correct discount is not applied to the invoice)
- To cancel any awaiting payments on an invoice
- To provide a refund if goods are damaged within the warranty period
- If you receive goods from a supplier that must be returned (e.g., due to damage, or fault – or simply don’t meet the buyer’s specifications)
In these cases, the original invoice can be cancelled with the issuance of a credit note, and thereafter a corrected invoice can be issued. If you intend to buy more from that supplier, the amount specified can be offset against future purchases or you may request a refund of your payment.