What is a Credit Note?
Written by Arnon Shimoni
✓ Expert
Last updated on:
A credit note is the document you issue to reduce or cancel an invoice you've already sent. It's the inverse of an invoice: where the invoice says the customer owes you money, the credit note says they owe less, or nothing, or that you owe them.
It exists because an issued invoice can't be edited. Once an invoice has a number and has left your system it is a tax document in two sets of books, yours and your customer's. Changing it would break the audit trail on both sides. So instead of changing it you issue a second document that refers back to the first and adjusts it. That second document is the credit note.
At a glance | Credit note |
|---|---|
What it does | Reduces or cancels the amount, and the VAT, on an earlier invoice |
Legal status | Treated as an invoice under Article 219 of the VAT Directive. Same mandatory contents, plus a reference to the original |
Mandatory reference | A specific, unambiguous reference to the invoice being corrected and to what is changing |
Numbering | Its own sequential number, usually in a separate series with a prefix like CR or CN |
Opposite document | Debit note, which increases the amount owed |
Does it move money | No. It corrects the accounting. A refund is a separate payment |
When you issue a credit note
Pricing error. Wrong rate, wrong quantity, discount not applied.
Wrong customer details. Wrong legal entity, missing VAT number, old address. The invoice is credited in full and reissued correctly.
Wrong tax treatment. VAT charged where the reverse charge applied, or the wrong rate.
Returns, cancellations and downgrades. The customer cancels mid-period, returns goods or drops to a cheaper plan after the invoice was issued.
Service credits and goodwill. An SLA breach, an outage, a negotiated concession.
Usage disputes. Metered usage was overstated and the customer has evidence.
Write-off of an unpaid invoice where you've given up collecting and want the receivable off the books. Whether you can recover the VAT depends on national bad-debt relief rules.
A credit note is not the tool for an invoice that was never valid in the first place. If an invoice is still in draft or has not been sent, you void or delete it. Once it has been issued, you credit it.
What a credit note must contain
Article 219 of the VAT Directive says any document that amends and refers specifically and unambiguously to the initial invoice is treated as an invoice. That means a credit note carries the full Article 226 contents (date, sequential number, both parties, description, amounts, VAT) and, under Article 226b, a specific and unambiguous reference to the original invoice and to the details being amended.
Field | On a credit note |
|---|---|
Title | "Credit note" or the national equivalent, so it isn't mistaken for an invoice |
Credit note number | Sequential and unique, typically its own series |
Date of issue | The credit note's own date, which determines which VAT period it falls in |
Reference to the original | The original invoice number and date. Mandatory |
What is being corrected | The lines or amounts, and the reason |
Supplier and customer details | As on the original, or corrected if that was the error |
Net amount, VAT rate, VAT amount | The amounts being credited, broken down by rate exactly as the original was |
Special wording | Whatever the original carried: "Reverse charge", exemption reference, "Self-billing" |
Under ViDA, from 1 July 2030 the sequential number of the original invoice becomes an explicit mandatory field on every corrective e-invoice for intra-EU supplies. Most billing systems already populate it.
Credit note vs other corrections
Debit note. The mirror image. It increases the amount owed, for example when a discount was applied in error or usage was understated. Legally it's a supplementary invoice and follows the same rules.
Corrective invoice. Some Member States (Poland, Spain and Italy among them) use a single corrective invoice that cancels and replaces the original rather than a separate credit note. The effect is the same: a new document, referring to the old one, with its own number.
Full credit and reissue. When the error is in the customer details or tax treatment, the cleanest fix is to credit the whole invoice and issue a new, correct one. The customer gets two documents that net to zero plus one that's right.
Refund. A credit note changes what's owed. If the customer already paid, they're now owed money, and returning it is a separate payment transaction. Keep them linked: a refund without a credit note leaves your revenue overstated, and a credit note without a refund leaves a customer waiting.
Credit notes in subscription and usage billing
Recurring billing produces more credit notes than one-off invoicing, because the invoice is generated from a stream of events that can be corrected after the fact. Three practices keep that under control.
Correct before you finalise. Most usage errors are caught within hours. A grace period between the end of the billing period and finalisation lets late or corrected events land on the invoice itself, with no credit note needed.
Partial credits by line. Crediting one overstated usage line is cleaner for both sides than crediting the whole invoice and reissuing.
Decide whose details go on the credit note. If the customer has since changed address or VAT number, the credit note can carry the original details, so it matches the invoice it corrects, or the current ones. Pick one rule and apply it consistently.
Where Solvimon fits
In Solvimon a finalised invoice is immutable, so corrections follow the rules on this page by design. Invoices in OPEN or DRAFT status absorb adjustment events and manual adjustments directly, and once an invoice is FINAL the only route is a credit note: full or partial, by line and period, numbered in its own CR series, linked to the original, and reflecting either the original or the current customer details as you choose. Credit and reissue is a single call, and a referenced refund on the finalised credit note sends the money back through the original payment. If credit notes are piling up because invoices are wrong at source, talk to one of our experts.
FAQ
Can I just edit and resend the invoice?
No. Once issued, an invoice is a tax document in your books and the customer's. Issue a credit note and, if needed, a new invoice.
Does a credit note need its own number?
Yes. It's treated as an invoice and must carry a unique sequential number. A separate series with a CR or CN prefix is the common practice.
Which VAT period does the correction fall in?
Generally the period in which the credit note is issued, not the original invoice's period. National rules vary on whether the customer must confirm receipt before the supplier can reduce its output VAT.
Can a credit note have a negative total?
The amounts on a credit note are usually shown as positive amounts being credited, with the document titled as a credit note. Some systems show negatives. Either way the effect is a reduction.
What's the difference between a credit note and a refund?
The credit note is the accounting document. The refund is the money. You can have one without the other, but you shouldn't.
Do credit notes have to go through e-invoicing networks too?
Yes. Where structured e-invoicing is mandatory, a document that amends an e-invoice is itself an e-invoice and must be issued in the same format and channel.
This page was checked against the VAT Directive and European Commission guidance in October 2026. It is a general explanation and doesn't replace advice from your tax adviser.
Related
EU invoice requirements. Everything an invoice, and so a credit note, must contain.
Invoice numbering. Separate series for invoices and credit notes.
Invoice. The document the credit note corrects.
Proration. Mid-period changes that would otherwise end in a credit note.
Revenue leakage. What sloppy crediting turns into.
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