What is a credit note and why create one? Here’s everything you need to know about this corrective document that businesses commonly use for refunds or billing errors. We cover all aspects of the credit note, including required items and much more.

What’s in this article?

• What is a credit note?
  
• When should you issue a credit note?
  
• What is the impact of the credit note on business accounts?
  
• What required items must be included on a credit note?
  
• How do you create a credit note?
  

What is a credit note?

A credit note (also known as a credit memo) is an accounting document issued by a professional to their customer, formalizing the correction of a previously issued invoice. A credit note is effectively a negative invoice. Since an invoice that has already been issued cannot be deleted or modified (to retain all records of transactions, per tax office regulations), a credit note allows the provider to cancel the invoice while issuing a new one to their customer. According to the French Ministry of the Economy, Finance and Industrial and Digital Sovereignty, a credit note must be kept for at least 10 years.

When should you issue a credit note?

Credit notes prove extremely useful for product returns, since they formalize the full or partial refund of a purchase to the customer. A credit note may also be issued:

• In case of a billing error (pricing, VAT, double billing, etc.) on the original invoice
  
• If a product is damaged or delayed in transit
  
• In the event of nondelivery of a supply or service
  
• When an order is changed after the invoice has already been issued
  
• If the customer withdraws their order (a legal right afforded under Article L121-21 of the French Consumer Code)
  
• When an invoice is updated (the credit note constitutes a corrected invoice in these particular instances)
  

What is the impact of the credit note on business accounts?

In the event of a refund, the supplier is indebted to their customer. With a credit note, the supplier can legally recognize their debt and record the amount owed to the customer in the business’s accounts.

What required items must be included on a credit note?

Generally speaking, a credit note that complies with the French tax office carries the same items as the original invoice (learn more about the required items on a standard invoice).

That said, the credit note must include the date and invoice number of the previously issued invoice, as well as a clear indication that it has been canceled. The credit note must also specify any discounts or rebates granted to the customer upon correction, as well as the terms of payment (purchase voucher, reimbursement by check, deduction from a subsequent invoice, etc.). For businesses liable to pay value-added tax (VAT), the credit note must also include the amount of VAT to be deducted.

It is imperative that the document header includes the words “avoir” or “facture d’avoir” (credit note in French). Last but not least, for the credit note to be valid, the words “net à payer” (net payable) must be replaced by “net à déduire” (net to be deducted) or “net à créditer” (net to be credited).

How do you create a credit note?

Given that the credit note is simply a corrected invoice, if you have Microsoft 365, you can use one of its invoice templates to generate your documents (make sure to include the credit note-specific information mentioned above).

However, more advanced invoicing software such as Stripe Invoicing can automate your invoice creation (including credit notes), as well as manage and streamline your accounts receivable and billing process without you having to write a single line of code. To learn how Stripe can make it easier for you to create and issue your credit notes, contact one of our experts.