Credit notes: when and how to issue one?

Once an invoice has been issued, it cannot be deleted or even modified. If you need to correct or cancel it, you have to go through a credit note (also called an “avoir” in French, or a “note de crédit” in Switzerland and Belgium). Every accounting software provides for issuing credit notes. However, like all accounting documents, the credit note is subject to strict regulations that you need to know — and that we detail for you in this article.

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What is a credit note?

A credit note is a corrective invoice that is always linked to an original invoice. This administrative and accounting document is used to adjust the amount of an invoice relating to the sale of goods or the provision of services. It is equivalent to an acknowledgment of debt towards your customer.

When should you issue a credit note?

The credit note allows you to comply with the law that prohibits modifying or destroying an invoice that has already been issued. Its content adapts to the reason that requires you to change your initial price:

• correcting a price that was incorrect for the supply of goods or the provision of a service;
• cancelling an invoice bearing incorrect customer details, before reissuing the invoice with the correct information;
• adjusting shipping costs;
• granting a discount as a goodwill gesture;
• offering a reduction on a future order to reward your customer’s loyalty;
• correcting the amount or cancelling the invoice because the customer cancelled all or part of their order;
• deducting part of an invoice’s amount because the customer changed the contents of their order;
• refunding a purchase that did not match the order;
• cancelling an invoice because the product or service was not delivered;
• deducting the amount corresponding to a return of goods;
• compensating the customer for a late delivery;
• resolving a dispute amicably (and maintaining a good relationship with your customer);
• cancelling (temporarily or permanently) an order because you are out of stock or unable to deliver the promised service;
• correcting a VAT error;
• making a partial refund if the order did not go as planned, was delayed, etc.

Conditions of validity for a credit note

A credit note must be kept for 10 years, just like the invoice it refers to. Unless otherwise specified in your Terms and Conditions of Sale, its validity period is 5 years, during which your customer may assert their rights, as stated in Article L110-4 of the French Commercial Code.

Not to be confused with deposit invoices, down payments, or cash discounts

A deposit invoice corresponds to the partial amount of the total invoice that the customer agrees to pay before the delivery of goods or the completion of a service. The amount of the deposit invoice is deducted from the final invoice. Paying a deposit is binding on both the customer and the seller. If either party changes their mind for any reason, they may be liable for damages.

A down payment (arrhes) is also an advance payment made by the customer before settling the final invoice. However, paying it does not bind either the customer or the seller. If the seller cancels the order, they must reimburse the customer twice the amount of the down payment. If the customer cancels, the down payment is not refunded.

A cash discount lets you offer your customer a reduction, provided they pay for their order in cash or make an early payment.

Mandatory information on credit notes

A credit note follows the same requirements as a standard invoice. The mandatory information is similar (see the dedicated page on mandatory invoice information), but instead of the heading “Invoice”, it must bear the heading “Credit note”. In addition, the mention “Amount due” is replaced with “Amount to deduct” or “Amount to credit”.

Refund methods

When you issue an invoice, you must specify the payment method. For a credit note, you must indicate the refund method. This can be a reimbursement by cheque, bank transfer, or credit card. You can also offer your customer to apply the reduction to their next order or issue them a voucher.

Mandatory information for drawing up a credit note

All the information required on a standard invoice must be included:

• customer details;
• billing address;
• purchase order number;
• number of the original invoice it refers to;
• the credit note number;
• issue date;
• date of the service or sale;
• applicable VAT rates;
• quantity of goods and/or description of services;
• unit price;
• itemized amounts;
• total amount including tax;
• amount excluding tax;
• if your credit note spans several pages, each page must carry a page number in the format n/N, where “n” is the page number and “N” is the total number of pages.

Numbering credit notes

Like invoices, credit notes must follow a chronological numbering sequence, with no gaps. You have two options: either include your credit notes within your invoice numbering, or set up a separate numbering sequence specifically for credit notes.

Calculating VAT

If the credit note is not subject to VAT, you must add the mention “Net of tax”. On the other hand, if VAT must be included, you need to state it separately, so that both you and the customer can report the amounts in your VAT returns to the tax authorities.

Drafting the credit note

If you use accounting software, you will have a dedicated feature for drafting your credit note. It will generate a credit note reproducing the content of the original invoice, on which you make adjustments based on the amount to be deducted. Depending on the options offered by your invoicing software, you may or may not be able to choose the numbering (included with invoices or separate). VAT will be calculated automatically.

If you do not use business software, the simplest approach is to copy and paste the original invoice, then correct the various fields.

In either case, if you feel the changes are significant enough to require rewriting the entire credit note, it is simpler to issue a full credit note equivalent to the original invoice to cancel it, then draft a new invoice. This is also the best solution when you need to manage several VAT rates applied to the same order, as it limits the risk of errors.

Accounting for the credit note

Your credit note is automatically recorded in your accounts if you use invoicing software. If you handle your accounting manually, your credit note must be debited from expense account 44586, “Taxes on turnover on invoices not yet received” (French chart of accounts).

Credit notes are generally accounted for as a whole at the close of your financial year.