What is credit note and when to create it?

What is a Credit Note?

A credit note is a document a seller gives to a buyer to show that the buyer is being credited for a certain amount. This usually happens because the buyer returned some goods, the seller made a mistake in the original invoice, or there was some other reason the buyer is owed money.

It’s like getting a store gift card when you return something, but it can also be used to reduce the amount you owe on future purchases.

When to Create a Sales Return/Credit Note

You should create a sales return or credit note in these situations:

  1. Damaged Goods: The customer receives products that are broken or damaged.
  2. Incorrect Items: The customer receives the wrong items or the wrong number of items.
  3. Quality Issues: The products do not meet the quality standards promised.
  4. Excess Inventory: The customer wants to return extra items they don’t need.
  5. Pricing Errors: The customer was charged too much.