A credit note looks like a sales invoice but is just the opposite, it is a negative invoice. You can use a credit note to reduce a previously issued sales invoice in price or even cancel it altogether.
Credit note example 1️⃣
- Martien creates a sales invoice of €100 (excluding vAT) and sends it to his customer.
- Not much later, Martien notices that he was only supposed to invoice €80 (excluding vAT) and wants to correct his mistake as soon as possible.
- Martien adds a credit note worth €20 (excluding vAT) and sends it to his customer.
This leaves €80 as revenue in Martien’s accounts. Because the original sales invoice of €100 has been reduced by creating a credit note worth €20.
In the above example, we have reduced a sales invoice by creating a credit note. As a result, our amount of sales has dropped from €100 to €80 and, of course, this also has a similar impact on your possible vAT obligations.
Credit note example 2️⃣
Equally, you could prepare a credit note to completely neutralise your sales invoice (and then prepare a new sales invoice). This is necessary, for example, if you have invoiced the wrong company, consider the next situation:
- Martien makes a sales invoice of €100 (excluding vAT) and sends it to Mr Janssens’ company 1.
- A few weeks later, Mr Janssens informs Martien that he has two companies and that Martien should have invoiced company 2.
- Martien adds a credit note worth €100 (excluding vAT) to company 1, neutralising the original sales invoice.
- Martien then creates a new sales invoice worth €100 (excluding vAT) addressed to company 2.
Why can a credit note still be important?
We talked above about an incorrectly charged price or invoicing to the wrong company, but there may still be reasons.
For example, after consulting with a dissatisfied customer, you could award a discount via a credit note. Then the initial sales invoice remains what it is, you’re just going to make sure your customer has to pay just a little less than the initial sales invoice. Not ideal, but better than potentially receiving nothing at all for your services.
You can also have sold something and know with certainty after preparing your sales invoice that your customer will unfortunately not pay. Suppose, for example, that your customer is not doing well and is simply not in a financial position to pay you, bankruptcy looms for him.
Attention!
With a credit note, you admit that your overdue customer will no longer have to pay you. So only do this if you are 100% sure no payments will follow anyway.
You have already created your sales invoice – possibly even processed it in a vAT declaration – and as an entrepreneur you obviously have to pay taxes on your profit as well as vAT on that sales invoice.
You could then create a credit note, thus deleting the turnover from that original sales invoice as well as its vAT impact.
Adding a credit note?
Super easy with Dexxter, find out hereas subject to VAT and hereas exempted from VAT. The date on the credit note is the date you create it, even if the invoice to which it applies was created in a previous quarter or financial year. Please note that the vAT rate used on the credit note must always be the same as the rate on the original invoice.
Entering a credit note you have received?
This is also super easy with Dexxter, you can book these under purchase invoices and check that they are credit notes. The date you choose for this is the document date of the credit note, even if the original invoice was issued in a previous quarter or financial year, for example.
