What is a Credit Invoice, and When to Use it?

If you’re currently working on a small business project or for a company that offers products and services for sale, there will be situations where you will need to write a credit invoice.

This document is very important in cases when customers ask for refunds or when you want to treat them to some promotions. Besides that, it also makes your customers feel secure knowing that they can get their money back when the product doesn’t meet their needs.

Creating a credit invoice can be tricky if you’ve never written one before, but our invoice generator can help you out! To further get the gist of what a credit invoice is and how it can benefit both you and your business, keep reading this guide!

What is a Credit Invoice?

A credit invoice is a document which confirms that you have credited a specific amount of money back to the customer who bought your product or service. This usually happens when a client requests a refund for the goods they have purchased from you or a service you provided them with.

In such cases, you don’t need to delete the original invoice you sent to the client when they ordered your product or requested your services. Instead, by issuing a credit invoice, you can update the first one along with the customer’s account. This means you can keep evidence of each payment between you and the client in one place.

Needless to say, issuing and properly organizing credit invoices can also help you adjust your sales tax records adequately and keep your clients’ accounts neat and up-to-date.

Note that the credit invoice vs. credit memo differences don’t actually exist—these two terms mean the same thing, while the document is also known as a credit note.

When to Use a Credit Invoice

The situations in which you will most certainly need to use a credit invoice are:

#1. Discounts & Promotions

If you have a buyer who is consistently purchasing your products or services, it’s a good idea to reward them for their loyalty at some point. You can do so by offering them a discount or announcing promotions that you can send to their accounts with a credit invoice.

#2. Returns

Sometimes, a customer may ask to return a product or service you provided them with. This happens quite often, usually when the product arrives destroyed or faulty in any other way.

Whatever the case, when a customer requests a refund for the returned product, you should send it to them through a credit invoice. This will help you keep track of all the transactions between you and your clients, including both purchases and returns.

#3. Errors

Order (or even payment) errors are inevitable in all types of business. These may include anything from forgetting to apply a discount to adding figures the wrong way. They lead to an incorrect invoice amount, which is why you may overcharge your client without noticing it right away.

If the client notices such an error and informs you about it, you can issue a credit invoice to help correct the issue and help them take back their funds.

#4. Prepayment

If some of your customers have already paid a specific amount of money on account, they might want to use it as a prepayment for the product or service bill. In such cases, the best solution here is to create a credit invoice, which can then be used as a receipt and sent to the customer in question.

If by any chance you encounter a situation where an outstanding balance is necessary, you can make an additional credit invoice where you can mention which parts of the bill have been paid so far.

#5. Partial Refund

Similarly to a standard refund, a partial refund is also something you may encounter quite often when selling your products or services to people.

You will need it in cases when a customer has bought a batch of your products or services but only wishes to return some of them. By issuing a credit invoice, you give backonly what they paid for the items that are being returned.

#6. Invoices Issued by Mistake

If by any chance you've mistakenly sent an invoice to your customer, you can pay them back through a credit invoice.

How to Create a Credit Invoice

Here are the essential steps you should follow to create a solid credit invoice:

1. Title the document “Credit Invoice.” The title should be placed at the top of the document.
   
2. Add the customer’s information. This section should include the contact details of your client, including their full name, email and home addresses, phone number, etc.
   
3. Provide your business information. Once you provide the customer’s information, you should disclose yours as well.State the name of your company, your email address, billing and shipping addresses, phone number, VAT number, etc.
   
4. Enter the date on which the invoice is being issued. This date should be different from the one on the original invoice, as these will be two separate documents.
   
5. Add the credit invoice number. The number should be unique, and it’s supposed to help you find a specific invoice more easily later, if necessary.
   
6. Disclose the reference number of the original invoice. Mention the reference number of specific products or services from the initial purchase that have been (or were supposed to be) provided.
   
7. Add the product or service description. It’s necessary to mention how many products the customer ordered and how much they cost in total to know how much you should credit the client back.
   
8. State the total amount of the credit. Last but not least, add the total credit amount that needs to be returned to the customer.

If you want to automate the invoice-making process, you can use our free invoice-building service. All you need to do is enter both your and your customer’s information in the designated sections, and you’re good to go!

Besides this, it’s possible to add a logo of your establishment to the invoice. You can find the uploading section for the logo next to the title of the invoice.

There’s also an option that enables you to preview your invoice each time you add new information. Once you’re done, you can use the same invoice template for other clients when necessary.

Benefits of Credit Invoices

Now that you know how to create a credit invoice, let’s see what perks these documents bring:

Prevents Errors in Bookkeeping

Thanks to this type of invoice, you can easily keep track of your transaction history, which usually includes every incoming and outgoing transaction. This will allow you to easily access this payment data when necessary and find all the details you need more easily when searching for something particular.

Helps You and Your Client Avoid Misunderstandings

When you issue a credit invoice, it serves as some kind of written agreement between you and your client. Since it details the entire transaction through which you credit the customer back, there will be no room for conflicts or misunderstandings, as everything will be clear and thoroughly explained in this document.

Guarantee for the Customer

Customers keep your business alive, and it’s therefore under your control to provide a safe service for them. If you let your customers know that you will provide a refund if they return a product and send them an adequate invoice to support this, they will feel safer when ordering from you.

Final Thoughts

And there you have it—now you know everything about credit invoices! Hopefully, this article has helped you get a better understanding of why this document is important and how you can make one the easy way.

Even though it might not sound easy to issue a credit invoice at first, our online invoice generator can help you out and generate a fully customized document for you in a breeze! Besides that, we can also help you by providing ready-made templates for other types of documents, such as W-2 forms, pay stubs, and 1099 Misc.

Credit Invoice FAQ

#1. What is the difference between a credit memo and invoice?

A credit memo and a credit invoice represent the same thing—a document that details the transaction through which a seller credits a specific amount of money back to their customer.

#2. Is the credit invoice a refund?

A credit invoice is not necessarily a refund, but sellers typically use this document to send a refund to customers who weren’t happy with their orders. It can also be handed to the buyer in cases of overcharging, prepayment, errors, or invoices that were issued by mistake.

#3. Who issues a credit invoice?

A credit invoice is always issued by the seller. The seller should also address the invoice to the buyer to let them know that a payment is being added to their account.

Key Takeaways

• A credit invoice is a statement that shows how much money you need to return to a customer. It is mainly used when you need to credit the entire (or partial) cost of the product or service you sold to pay the client back.
• This type of invoice should also be issued when a customer needs to make a return, wants a partial refund, or receives a discount.
• Credit invoices can prevent errors in bookkeeping, help you avoid conflicts with your customers, and represent some kind of guarantee for the client.