Credit note vs refund: what is the difference?
Understand when a credit note adjusts the accounting record and when money is actually returned to the customer.
A credit note and a refund are related but not identical. A credit note documents a reduction to an amount previously invoiced, while a refund is the movement of money back to the customer.
What a credit note records
A credit note normally references an earlier invoice and explains why some or all of the amount is being reversed or reduced.
Common reasons include returns, overbilling, pricing corrections, cancelled work or an agreed service adjustment.
When a refund follows
If the original invoice has already been paid, the business may also need to return money. The refund transaction and the credit note should be traceable to one another.
If the invoice has not been paid, the credit may instead reduce the customer's outstanding balance.
Preserve the audit trail
Do not silently delete the original invoice and replace it with a smaller one when your accounting process requires a documented adjustment.
Use unique references and retain the original invoice, credit note and payment records according to applicable recordkeeping requirements.
This guide provides general educational information and is not legal, accounting, tax or financial advice. Requirements vary by country, industry and transaction. See how Docuivo tests its tools and calculations.