After an invoice has been issued, there are situations where you may need to reduce the amount your customer owes, or refund a payment they have already made. The official document used to record this reduction is called a credit note. It is a legally recognized document that formally corrects a previous sale.
This guide explains what a credit note is, when you should use one, and how to create and issue them from an existing invoice in Dappr.
What is a credit note?
A credit note, sometimes called a credit memo, is essentially a "negative invoice." It is a document sent from a seller to a buyer, notifying them that they are being credited a certain amount. Issuing a credit note is the correct accounting practice for officially canceling out all or part of an existing invoice. From an accounting perspective, it reverses the original sale, reducing your recorded revenue and, if the invoice was unpaid, your accounts receivable.
You might need to issue a credit note for several common reasons:
Correction of an error: The original invoice had the wrong price, quantity, or a service was accidentally billed twice.
Item return or cancellation: The customer returned goods that were not defective, or they canceled a service subscription partway through a billing period.
Damaged goods: The product arrived damaged, and you are offering a partial or full credit to compensate the customer.
Pricing adjustments or discounts: You've agreed to a post-sale discount as a gesture of goodwill, perhaps to resolve a customer complaint or reward a loyal client.
Issuing a credit note ensures that your accounting records are accurate, reflecting the correct final amount of the sale. This is crucial for accurate financial reporting and for maintaining a clear, professional transaction history with your customers.
How to issue a credit note in Dappr
In Dappr, a credit note must be created from the original invoice it is meant to correct. This direct link ensures a clear audit trail, connecting every credit back to its source transaction.
Navigate to the invoice you need to credit. You can find it by going to Sales > Billing > Invoices. Click on the invoice to open its details, and click View details.
On the invoice's dedicated page, scroll down to the bottom to find the Credit notes section.
Click the Issue credit note button.
This will open the full-screen credit note editor, which will be pre-populated with the items from the original invoice, saving you time and reducing the risk of data entry errors.
Filling out the credit note
Select Items to Credit: In the "Items to credit" section, select the checkbox next to each item you want to apply a credit to.
Adjust the Credit Amount: By default, the full amount of the selected item will be credited. If you only need to credit a partial amount (for example, offering a $20 discount on a $100 service), click the edit icon next to the amount in the "Credit amount" column and enter the correct value.
Select a Reason: Choose a reason for the credit from the dropdown menu (e.g., "Item return or cancellation"). This helps with your internal record-keeping and can provide valuable insights. For example, a high number of credits for "Product or service issues" might signal a quality control problem that needs to be addressed.
Handling refunds and customer balances
After you have specified the credit amount, Dappr will determine the next step based on whether the original invoice has been paid.
If the invoice has not been paid: The credit note will simply reduce the total amount due from the customer. No money changes hands. The customer will see the updated, lower balance on their invoice.
If the invoice has been paid: You have two options for the credited amount.
Issue a refund: You can refund the money directly back to the customer's original payment method via our Stripe integration. This is a direct cash-out transaction.
Add to customer's balance: You can keep the amount as a credit on the customer's account. This credit will be automatically applied to the next invoice you send them, reducing their future payments. This can be a great way to encourage repeat business.
It is always good practice to communicate with your customer to determine which option they would prefer, as it affects their cash flow and your relationship with them.
Finalizing and sending the credit note
Once you have finalized the details, you can issue the credit note. You will have the option to send a notification email to your customer, which will include a PDF of the credit note for their records. This formal communication keeps your customer informed and maintains a professional image.
After issuing, you will be redirected to the credit note's dedicated page. From here, you can download the PDF at any time and view the status of any associated refunds, completing the audit trail for the transaction.