Credit note: What do I need to know?
Credit note or cancellation invoice – both terms are often used synonymously, but they are not.
Entrepreneurs in particular should know the difference and use both documents correctly.
What is meant by a credit note, what advantages does it have and what differences are there to the
invoice correction, you can find out here.
Definition: What is a credit note?
Put simply, a credit note is a reverse invoice, because it is not the party providing the service or goods that issues an invoice. Instead, in this particular case, he receives a corresponding document from his customer in return, often also called a billing document or billing credit note.
The legal regulations for a credit note can be found in the Value Added Tax Act (Umsatzsteuergesetz, UStG) Section 14 Paragraph 2 Sentence 3, which states that the recipient of a service may issue such a document if this procedure has been agreed in advance between both parties.The difference between an invoice and a credit note is therefore solely who issues the respective document. The tax office recognizes both documents equally. Provided they meet the required mandatory information.
The necessary details of a credit note
The mandatory information that must be included includes:
The document must be clearly identified as a credit note, conventionally by the heading.
The name and address of both parties to the contract, i.e. service provider and service recipient, must be listed.
Tax number and/or VAT identification number also belong on the document.
Consecutive number of the credit note, so that the document can be clearly assigned.
The date of issue of the credit note should also be included in the document.
An exact description/description of the goods or service must not be missing.
The date of the service and/or delivery must be stated.
Consideration for the delivery or service. Broken down by the different tax rates that were applied.
Tax rate and amount of tax that was charged in each case.
The mandatory information must be listed. If they are missing, the recipient of the credit note may not use the input tax deduction. Therefore, you must make sure that this information is not missing.
The advantages of billing by credit note
If both parties to the contract have agreed on a credit note procedure, this can even be advantageous for both sides. This is because this procedure usually establishes a longer-term business relationship – which gives both sides a certain degree of planning security.
Both sides save time with this procedure: The recipient of the service does not have to check the invoice, but can issue a credit note himself. While the provider of the service does not have to write an invoice and, in the worst case, even wait a long time for his money. A credit memo procedure also eliminates the need for time-consuming dunning procedures.
Create credit notes: Quite simple with easybill
Curious now? Then simply take a look at the corresponding function in our invoicing software. With our handy templates, you don’t have to think long and hard about what information belongs on a credit note. Instead, you simply create the document with a few clicks. This way, you benefit from the advantages of a credit note without having to think your way through a new process – we’ve already done that for you.
Frequently asked questions
to easybill and credit notes
A credit note is a financial transaction in which money is transferred to an account. This is usually done as a refund or compensation for previous payments or overpayments.
A credit note can also be issued as a document stating the amount that has been credited. It is used to ensure correct accounting and transparency in financial matters. Generally, a credit memo is used to correct errors, refund overpayments or make positive adjustments to financial records.
No, a credit note is not a payout in the true sense of the word. A credit note means that money is transferred to an account or credited to a customer. This is often done as a refund, correction of overpayments or as compensation for payments previously made.
A withdrawal, on the other hand, usually refers to actual physical cash or an electronic transfer being made to someone. A credit is more of a positive adjustment in the financial records, whereas a withdrawal is an actual giving of money.
A proper credit note should include the full contact details of the issuing company and the recipient. The reason for the credit note, the amount and the date of issue should be clearly stated. Other important information includes a unique credit note number and the relevant transaction details. The credit note should be clear and precise to ensure correct accounting and transparency.
A credit note can be issued for various reasons, including refunds for defective products or services not provided, compensation for overpayments, offsetting of existing credit balances and correction of billing errors.
It is used to correct financial transactions and ensure fair billing. Companies can also grant credit notes as a gesture of goodwill to promote customer satisfaction and strengthen customer loyalty. Overall, a credit note enables financial matters to be handled transparently and correctly.
A credit note is usually issued to customers or business partners. This is done when a refund is required, an overpayment has been made, a credit balance is offset or to correct errors in financial transactions. Companies use credit notes to ensure fair billing and to maintain customer relationships.
To create a credit note, you normally need a corresponding form or software such as easybill. Include all relevant information in your credit note, including the reason for the credit note, the amount and the relevant transaction data. Make sure that the credit note is clear and precise before you send it to the customer or business partner. When using easybill, you can often automate the process and generate the credit note directly from the invoice.
Invoice correction: the differences with credit note
As already indicated, credit note and invoice correction, also referred to as cancellation invoice, are often confused in everyday language or at least treated as equivalent. In fact, however, there are some differences between the two documents:
- An invoice correction neutralizes parts of the original invoice.
- A cancellation invoice must always refer to an existing invoice. The invoice number as well as the date of issue must be indicated on the invoice correction. In addition, the invoice correction must also have its own consecutive invoice number.
- The invoice correction must also list the amount by which the original invoice is corrected.
An invoice correction is used when the customer returns or complains about a product and you, as the seller, want to grant a price reduction.
