Credit Note Checklist

Before you start

A credit note is a document that reduces or cancels an amount a customer owes on a previously issued invoice. You use one when an invoice was too high, when goods were returned, when a discount is agreed after billing, or when an invoice was simply wrong. The golden rule is that you do not delete an issued invoice — you offset it with a credit note, so the original record and its correction both stay visible.

Before you raise one, confirm what is actually being credited and why, and check the GST treatment of the original invoice. This is general guidance, not tax advice — confirm GST adjustments with the ATO or your accountant. See how to issue a credit note for the wider context.

Decide what to credit

Start by pinning down the adjustment precisely:

• Which invoice the credit relates to
• Whether you are crediting the whole invoice or part of it
• The reason — return, overcharge, agreed discount or error
• The net amount and the GST portion to reverse
• Whether a corrected invoice will follow the credit

Being clear on whether this is a full or partial credit, and whether a replacement invoice follows, avoids a tangle later.

Raise the credit note correctly

Now create the credit note itself:

1. Label it clearly as a credit note, not an invoice
2. Give it its own number on a distinguishable sequence
3. Reference the original invoice number and date
4. Show the amount being credited as a clear reduction
5. Reverse the GST consistently with the original invoice
6. State the reason for the credit

A credit note that mirrors the structure of the original invoice is the easiest for both sides to reconcile.

Apply it and tell the customer

Issuing the note is not the end — it has to land correctly:

• Decide whether the credit reduces the outstanding balance, is refunded, or is applied to a future invoice
• Confirm that choice with the customer in writing
• Send the credit note to the same billing contact as the invoice
• Update your ledger so the customer's balance is correct
• Keep the credit note with the original invoice on file

If the customer has already paid, be clear about whether they are owed a refund or a credit against future work.

Common mistakes

These credit-note errors cause confusion:

• Deleting the invoice — destroying the audit trail instead of crediting it
• No reference — a credit note that does not name the original invoice
• GST not reversed — crediting the net but leaving the GST
• Unapplied credit — issuing it but never updating the balance

Keep credit notes clearly separate and always linked. Our free invoice tools help you keep a consistent layout, and understanding what a credit note is rounds out the picture. This is general information only — confirm GST adjustments with the ATO or your accountant.