What Is a Credit Note?
A credit note reduces or cancels an amount on an invoice you already issued. For GST sales, the equivalent is usually called an adjustment note.
In this answer
- Understand what a credit note is for
- Learn how it links to the original invoice
- Know the GST 'adjustment note' equivalent
- Find out where to confirm the rules
4 min
Reversing part of an invoice
A credit note is a document that reduces or cancels an amount you previously billed on an invoice. You might issue one because a customer returned goods, you over-charged, a discount was agreed after the fact, or part of an order was never delivered. Rather than altering the original invoice — which is poor practice once it has been sent — you issue a separate credit note that offsets it.
The credit note effectively says 'the earlier invoice was too high by this amount'. The customer's balance with you drops accordingly. It keeps your records honest: the original invoice still exists as issued, and the credit note transparently records the correction alongside it.
Linking to the original
A credit note only makes sense in relation to the invoice it corrects, so it should clearly reference the original invoice — typically its number and date — along with the reason for the credit and the amount being reduced. That link lets anyone reviewing your records trace exactly what happened: here is the sale, and here is the adjustment to it.
Without that reference, a credit note floats free and creates confusion about which sale it relates to. Treat the cross-reference as essential. A clear, well-linked credit note is far easier for both you and your customer's bookkeeping to reconcile than a vague one.
The GST adjustment note
Where the original sale included GST, the correcting document is usually referred to as an adjustment note rather than simply a credit note, and it has its own GST role: it adjusts the GST that was originally accounted for. Because changing the value of a taxable sale also changes the GST, the ATO sets out what an adjustment note should contain and when it is needed. If your correction involves a GST sale, do not treat it as a plain credit note — confirm the adjustment-note requirements with the ATO or your accountant so the GST is corrected properly.
Issuing one cleanly
For the step-by-step, see how to issue a credit note, and produce the document with our free invoice tools.
This is general information only, not tax or legal advice. Credit note and GST adjustment-note rules depend on your circumstances — confirm them with the ATO or your accountant.
Key takeaways
- A credit note reduces or cancels an amount on an earlier invoice.
- It should reference the original invoice and give a reason.
- Never quietly edit a sent invoice — issue a credit note instead.
- For GST sales, the correcting document is usually an adjustment note.
- Confirm adjustment-note requirements with the ATO or your accountant.
Frequently asked questions
Is a credit note the same as a refund?
Not exactly. A credit note reduces the amount owed on an invoice; a refund returns money already paid. They can go together, but they are different steps.
What's the difference between a credit note and an adjustment note?
For GST sales, the correcting document is usually called an adjustment note and adjusts the GST. Confirm the requirements with the ATO or your accountant.
Should I edit the original invoice instead?
No. Leave the original as issued and create a separate credit note that references it. That keeps your records clean.
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