Credit note vs debit note: how to correct an invoice you have already sent
Once an invoice has gone to the customer it is a record, not a draft. Corrections are made with a second document that points back to it, and which one you use depends on which way the amount moves.
The short answer
A credit note reduces the amount a customer owes on an invoice you have already issued: goods came back, you overcharged, or you agreed a discount after the fact. A debit note does the opposite and increases it: you undercharged or supplied something extra. Both refer to the original invoice by its number, and the original invoice itself stays exactly as it was sent.
Side by side
| Credit note | Debit note | |
|---|---|---|
| Effect on what the customer owes | Goes down | Goes up |
| Typical reasons | Returned goods, overcharge, price or quantity error, late discount, cancelled order | Undercharge, extra goods or work, a charge left off the invoice |
| Refers to | The original invoice number and date | The original invoice number and date |
| Tax on it | Reduces the tax charged on the invoice | Adds to the tax charged on the invoice |
| Changes the original invoice | No | No |
The names are not used identically everywhere. In some places and industries the buyer raises a "debit note" to tell a supplier they are owed money back, and some sellers issue a simple supplementary invoice instead of a debit note. What does not change is the principle: the correction is a separate, numbered document that points to the invoice it corrects.
When to issue a credit note
- Goods returned. The customer sends back some or all of what was invoiced. The credit is for the value of what came back.
- You overcharged. A wrong price, a wrong quantity, or tax applied where it should not have been.
- A discount agreed after invoicing. A settlement discount, a goodwill gesture, or compensation for late or damaged delivery.
- The sale is cancelled. A credit note for the full amount is how an issued invoice is cancelled. More on that below.
When to issue a debit note
Use a debit note when the invoice asked for too little: a unit price below the agreed one, items delivered but left off, or a charge such as freight that was agreed and forgotten. The debit note adds the missing amount and its tax and refers back to the original invoice, so both sides can see why the total has changed.
If the extra amount is really a new sale, such as more goods ordered later, it is cleaner to issue a new invoice than a debit note. A debit note corrects something that was wrong; a new invoice charges for something new.
How to cancel an invoice you have already issued
You do not delete it, and you do not edit it down to zero. Deleting leaves a gap in your invoice numbers, and editing a document the customer already holds means your copy and theirs no longer match. Both make an audit harder to pass.
Leave the original invoice untouched
It stays in your records with its number, date and amounts exactly as issued.
Issue a credit note for the full amount
Same customer, referring to that invoice, crediting its whole value including tax, with the reason, for example "order cancelled".
Send it to the customer
So their records show the same thing yours do: an invoice and a credit note that cancels it.
Re-invoice if needed
If the sale is going ahead on different terms, issue a new invoice with a new number for the correct amount.
What a credit note should show
- The words Credit Note, so it cannot be mistaken for an invoice.
- Its own number, from its own sequence, and its date.
- The original invoice number and date it corrects.
- The seller's and buyer's details as they appeared on the invoice, including VAT numbers where the invoice carried them.
- The amount credited before tax, the tax on it at the invoice's rate, and the total credit.
- The reason: returned goods, price correction, discount, cancellation.
A debit note carries the same information, with the amount added instead of credited. For what the original invoice itself must carry, see what to put on an invoice.
A worked example
- Original invoice, before VAT
- 10,000.00
- VAT at 15%
- 1,500.00
- Invoice total
- 11,500.00
- Goods returned, before VAT
- 2,000.00
- VAT on the returned goods (15%)
- 300.00
- Credit note total
- 2,300.00
- Customer now owes (11,500 − 2,300)
- 9,200.00
Illustrative figures. The credit carries VAT at the same rate the invoice charged, so the VAT you report on the sale falls from 1,500 to 1,200. How to work VAT out in each direction is in how to calculate VAT.
Credit notes, debit notes and tax
In VAT systems a credit note normally reduces the output tax on the original sale and a debit note increases it, which is why both must refer to the invoice they adjust and must show the tax separately. How and when the adjustment is reported is set by your tax authority.
Credit notes in BuzPulse
Credit notes are part of the Invoice Generator in your BuzPulse workspace, on every plan, including Free. They need an account, because a credit note has to point at an invoice that is stored and numbered. The free invoice tool you can use without signing in does not keep invoices, so it has nothing to credit.
Choose the customer and the invoice
Only finalised invoices can be credited. A draft invoice has to be finalised first, or simply corrected.
Enter the credit
As an amount, or as a percentage of the invoice. The VAT on the credit is worked out at the rates the invoice charged.
Give the reason
It prints on the credit note, with optional notes in English and Arabic.
Save as a draft or issue it
An issued credit note is numbered (CN-0001 onwards), locked, and can be downloaded as a PDF to send. It reduces the customer's balance on their statement, and when you email the invoice afterwards the email shows the credit and the balance still due.
The printed credit note shows its own number and date, the original invoice's number and date, and the total credit, in English or in English with Arabic beneath it. Returned goods are a separate document in BuzPulse, a return (RET-0001 onwards), which also reduces what the customer owes.
Safeguards built in
- Credit notes and returns on one invoice can never add up to more than that invoice.
- While an active credit note exists, the invoice it credits cannot be edited, reopened, moved to another customer or deleted.
- An issued credit note cannot be changed, only cancelled. Cancelling it stops it counting and releases the invoice.
- An invoice that any credit note has referred to, even a cancelled one, cannot be deleted.
What BuzPulse will not do
- Issue debit notes. There is no debit note document. To charge more, issue a new invoice for the extra amount and reference the original in its notes.
- Put a ZATCA QR code on a credit note. Credit notes print without one, and BuzPulse is not connected to ZATCA's FATOORA platform, so it is not a Phase 2 e-invoicing solution for credit notes or invoices.
- Credit a draft invoice or credit more than an invoice is worth.
Frequently asked questions
- Is a credit note the same as a refund?
- No. A credit note reduces what the customer owes. If they have already paid, you then either refund the credited amount or let them use it against their next invoice. The credit note is the record; the refund is the payment.
- Can I just edit the invoice instead of issuing a credit note?
- Only while it is a draft that nobody has received. Once it has been issued, editing it means your records no longer match the customer's, and it breaks the audit trail your tax authority expects. Issue a credit note instead.
- Who issues a debit note, the seller or the buyer?
- Usage differs. A seller can issue one to increase an invoice it undercharged. In some purchasing practices the buyer raises a debit note to claim money back from a supplier. Whichever side issues it, it should refer to the original invoice.
- Does a credit note need its own number?
- Yes. Credit notes are normally numbered in their own sequence, separate from invoices, so each one can be traced. In BuzPulse they are numbered CN-0001 onwards automatically.
- Can I credit only part of an invoice?
- Yes. A credit note can be for any amount up to the invoice value, and an invoice can carry more than one credit note as long as together they do not exceed it.
The tools behind this
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About the author
Naeem Ahmed builds and runs BuzPulse. These guides describe tools he has built, and they describe how those tools actually behave — including where they stop.
Corrections and questions: naeem@buzpulse.com
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