Credit Notes

The Credit Notes tab manages adjustments to existing invoices. Issue refunds, correct errors, and handle returns with proper GST-compliant credit notes.

The Credit Notes page

The main Credit Notes interface displays all created credit notes with search and filtering capabilities.

Page header

New Credit Note button: Start creating a credit note with two options:

• From Invoice: Create credit note linked to specific invoice
• Standalone: Create independent credit note

Empty state

When no credit notes exist:

• Message: “No credit notes yet”
• Create Your First Credit Note button
• Guides you to the creation workflow

Search and filter

Search box: Find credit notes by number, client, or invoice reference

Status filter: Filter by credit note state (Draft, Approved, Applied, etc.)

Creating credit notes

From existing invoice

The most common method - create a credit note directly from an invoice:

1. Go to Invoices > Invoices
2. Find and open the invoice to be credited
3. Use Actions menu
4. Select Create Credit Note
5. Credit Note Editor opens with invoice details
6. Adjust line items and amounts as needed
7. Save and approve

Benefits:

• Automatically links to original invoice
• Pre-fills client and item details
• Maintains clear audit trail
• Simplifies application to invoice

Standalone credit note

Create a credit note without linking to a specific invoice:

1. Click New Credit Note in Credit Notes tab
2. Select Standalone Credit Note
3. Choose client
4. Add line items and amounts
5. Save and approve

Use cases:

• Goodwill gestures not tied to specific invoice
• Retainer refunds
• Overpayment corrections

Credit note structure

Credit notes mirror invoice structure for consistency:

Header information

• Credit Note #: Sequential reference (e.g., CR-001)
• Date: Issue date (affects GST reporting period)
• Client: Business being credited
• Reference: Link to original invoice (if applicable)
• Reason: Explanation for the credit

Line items

Just like invoices, credit notes contain line items:

Totals

• Subtotal: Sum of all line items
• GST: Calculated tax on taxable items
• Total: Final credit amount

AU requirement: GST on credit notes must match the GST treatment of the original invoice.

Credit note statuses

Status flow

Typical paths:

• Draft → Approved → Applied (invoice credit)
• Draft → Approved → Refunded (cash refund)
• Draft → Voided (created in error)

Applying credit notes

Once approved, apply the credit to reduce client balance:

Apply to specific invoice

1. Open approved credit note
2. Click Apply to Invoice
3. Select invoice from client’s outstanding invoices
4. Enter credit amount to apply (can be partial)
5. Confirm application
6. Invoice balance reduced, status updated

Partial application: Apply credit note across multiple invoices by applying portions to each.

Apply as refund

For cash refunds:

1. Open approved credit note
2. Click Record Refund
3. Enter refund details:
   • Amount
   • Date
   • Method (Bank Transfer, Credit Card, Cash)
   • Reference
4. Save
5. Status changes to “Refunded”

Client balance credit

Leave credit on client’s account for future use:

1. Approve credit note
2. Don’t apply immediately
3. Credit remains as available balance
4. Automatically applies to future invoices (optional setting)
5. Or manually apply later

Reasons for credit notes

Full invoice cancellation

When an entire invoice needs to be cancelled:

• Create credit note for full invoice amount
• Reference original invoice
• Apply to cancel invoice balance
• Invoice status changes to reflect credit

Partial credit / Line item adjustment

When only part of an invoice needs adjustment:

• Create credit note
• Include only items being credited
• Adjust quantities or amounts
• Apply to reduce specific invoice balance

Examples:

• Client returns some items
• Dispute resolution on specific line
• Discount applied after invoicing

Pricing corrections

When invoice has incorrect pricing:

• Calculate difference between charged and correct price
• Create credit note for overcharge amount
• Reference original invoice
• Apply to correct balance

Goodwill credits

Discretionary credits not tied to errors:

• Service recovery gestures
• Loyalty rewards
• Settlement of disputes
• Compensation for issues

GST handling

Tax code matching

Credit note tax codes must match original invoice:

Critical for BAS: Mismatched tax codes create reporting errors.

GST reporting

Credit notes affect your BAS:

• Reduce GST collected in the period
• Reported as adjustments on BAS
• Date determines which period the adjustment falls in
• Original and credit note must be in same or adjacent periods

ATO requirements

Australian Tax Office requirements for credit notes:

• Must clearly show “Credit Note” or similar wording
• Include your ABN
• Show date of issue
• Reference original tax invoice
• Show GST amount (if applicable)
• Clearly identify what is being credited

Best practices

Timely creation

• Create credit notes promptly when errors discovered
• Don’t delay client refunds
• Issue before month-end for same-period GST reporting
• Document reason clearly for audit trail

Clear documentation

• Always include reason for credit
• Reference original invoice when applicable
• Add detailed description of what is being credited
• Use team notes for internal context

Client communication

• Notify clients when credit notes issued
• Explain reason for credit
• Confirm how credit will be applied (refund or account credit)
• Provide copy for their records

Reconciliation

• Ensure credit notes are applied or refunded promptly
• Don’t leave approved credits unapplied
• Reconcile against bank for refund credits
• Review open credit notes regularly

GST accuracy

• Verify tax codes match original invoice
• Check GST calculations are correct
• Ensure credit note date aligns with BAS period needs
• Consult accountant for complex adjustments

AU-specific notes

Compliance

• Credit notes are tax documents - keep for 5+ years
• Must meet tax invoice requirements (ABN, date, GST)
• ATO may request credit note records during audit
• Proper documentation supports GST claim adjustments

BAS impact

• Credit notes reduce GST liability
• Reported in the period issued
• May require adjustments to previous BAS if issued late
• Keep detailed records of all adjustments

Client expectations

Australian business practices:

• Credit notes expected for returns and errors
• Should be issued within 30 days of invoice
• GST-inclusive refunds standard
• Clear documentation appreciated

Integration with workflow

Invoices

Credit notes directly link to invoices:

• Created from invoice actions
• Applied to reduce invoice balances
• Reference original invoice numbers
• Show in invoice history

Bank

Refund credit notes connect to bank:

• Record refund payments in bank reconciliation
• Match credit note refunds to bank transactions
• Track cash flow impact

Reports

Credit note data feeds into:

• Revenue reports (negative income)
• GST reports (adjustments)
• Client balance reports
• Credit note registers

Client accounts

Unapplied credits:

• Show as negative balance on client account
• Can apply to future invoices
• Included in statements
• Affect aged receivables reporting

Troubleshooting

Can’t create credit note

• Verify invoice status (can’t credit voided invoices)
• Check user permissions for credit note creation
• Ensure invoice is fully saved (not draft)
• Original invoice must exist in system

GST calculation incorrect

• Verify tax codes match original invoice
• Check unit prices and quantities
• Confirm GST setting is consistent (ex vs inc)
• Review date for period accuracy

Can’t apply credit note

• Credit note must be “Approved” status (not Draft)
• Client must have outstanding invoices
• Check credit note amount isn’t already fully applied
• Verify user permissions

Client balance still showing

• Credit note may not be fully applied
• Check application status
• Verify credit note wasn’t voided
• Confirm amounts applied correctly