Last updated November 6, 2026
General information, not tax or legal advice. The rules depend on your country and your situation, so check anything with a tax or legal consequence with your accountant.
To issue a credit note, create a new document with its own number, refer to the original invoice by number and date, show the amount being credited with its VAT, say why, and send it to the customer. You don't edit or delete the original invoice. It stays on file, and the credit note reduces it.
What is a credit note?
A credit note is a document that reduces or cancels an invoice you have already issued. The customer owes less because of it, and your sales and VAT figures go down by the same amount.
In EU VAT law, a document that amends and refers specifically to an original invoice is treated as an invoice itself (Article 219 of the VAT Directive). In practice that means you should keep it, number it and report it like one.
When do you need one?
You need a credit note when an invoice was right when you issued it but the amount has since changed, or when it was wrong and has to be reversed.
| Situation | What to do |
|---|---|
| Customer returned goods or cancelled part of the job | Credit note for that part |
| You agreed a discount after invoicing | Credit note for the discount |
| Wrong price or quantity on the invoice | Credit note, plus a corrected invoice if needed |
| Invoice addressed to the wrong company | Credit note in full, then a new invoice |
| Invoice still in draft, not sent | No credit note, just fix the draft |
| Customer simply hasn't paid | No credit note yet. See write-down vs write-off |
A customer who won't pay is a different problem from an invoice that was wrong. Bad-debt VAT relief has its own rules in each country, and a credit note isn't the usual way to claim it.
What must a credit note include?
Treat it as a full invoice with a reference back to the original. Rules differ by country, but this list satisfies most of them:
- The words "Credit note", so nobody mistakes it for a new bill
- Its own unique number and its issue date
- The number and date of the original invoice
- Your name, address and VAT number
- The customer's name, address and VAT number if the original had one
- What is being credited, with quantities and prices
- Net amount, VAT rate, VAT amount and total credited
- The reason, in a few words
Use the same VAT rate as the original invoice, even if the rate has changed since. You are reversing tax that was charged at that rate. If you sell in the UK, HMRC's VAT guide sets out its own requirements for credit notes, so check it.
A worked example with VAT
Here's an invented example. A design studio invoices €1,000 plus 20% VAT. The client then drops one of the five agreed deliverables, worth €200.
| Net | VAT (20%) | Total | |
|---|---|---|---|
| Invoice INV-2026-0117 | €1,000 | €200 | €1,200 |
| Credit note CN-2026-0004 | −€200 | −€40 | −€240 |
| Now owed | €800 | €160 | €960 |
The note on the document can be as short as this:
Credit note CN-2026-0004, issued 12 March 2026, against invoice INV-2026-0117 of 2 March 2026. Reason: deliverable 5 cancelled by agreement. Amount credited: €240.00 including €40.00 VAT.
If the client hasn't paid, they now pay €960 and you close both documents against that payment.
If the client has already paid €1,200, you owe them €240. Refund it, or offset it against their next invoice if they agree in writing. Either way, keep a record of what happened to the money.
How does a credit note affect your VAT return?
It reduces your output VAT in the period the rules say it belongs to, usually the period in which you issue it, and your customer reduces the VAT they reclaimed. The EU's basis for this is Article 90 of the VAT Directive, and each member state sets its own conditions. Tell your accountant about any large credit note before the return is filed.
Credit note or new invoice?
A partial correction only needs the credit note. If the whole invoice was wrong, because of the wrong customer or the wrong VAT treatment, credit it in full and issue a new invoice with a new number. Don't reuse the old number, and don't renumber anything to hide the gap. Invoice numbers are meant to show the whole history, corrections included.
Correcting an invoice in ERPFlow
ERPFlow has no credit note document, so here's what it does instead.
An issued invoice in ERPFlow is final: it can't be edited or deleted. To correct one, you Mark as void and then Duplicate it. The voided invoice keeps its number, and its PDF is stamped VOID. The copy is a new draft that you fix and issue under a new number. That handles the full cancel-and-reissue case.
It doesn't cover a partial credit on its own document, like the example above. If your country or your accountant requires a credit note for that, issue it from your accounting system, then bring the two records into line. Tax reporting in ERPFlow reads from the invoices themselves, so tell your accountant about anything credited outside it. If a customer overpaid, ERPFlow can record a refund against that invoice, and you can export your invoices as CSV for your accountant.