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How to Add Credit Note

Overview​

Creating a credit note records the amount being credited back to the customer and adjusts your accounts receivable. Credit notes can be created for full invoice cancellations or partial adjustments for specific items.

Prerequisites​

  • User has Finance module access
  • Customer exists with at least one invoice
  • Invoice details available for reference
  • Reason for credit note documented
  • Approval obtained for high-value credits (if required)

Step-by-Step Guide​

Step 1: Navigate to Credit Note​

From the left sidebar, expand Finance and click Credit Note.

On the Credit Note list page, click + Add Credit Note button.

Step 2: Select Customer​

Customer Name Field:

  • Click the dropdown or search box
  • Type customer name to filter
  • System shows matching customers
  • Select the customer receiving credit

The system displays customer details including GSTIN and registered address for verification.

Step 3: Select Invoice​

Invoice# Field:

  • Dropdown shows all unpaid/partially paid invoices for selected customer
  • Format: Invoice number with date and amount
  • Select the invoice being credited

Once selected, the system loads:

  • Invoice date and amount
  • Original invoice items
  • Billing and shipping addresses
  • GST details

Step 4: Choose Credit Note Type​

Credit Note Type Dropdown:

Two options available:

Full Credit:

  • Credits entire invoice amount
  • All line items automatically included
  • Use for: Complete order cancellation, full returns, invoice voiding
  • Items section auto-populates with all invoice items

Partial Credit:

  • Credits selected items or quantities
  • Manually specify which items and quantities
  • Use for: Partial returns, specific defective items, selective price adjustments
  • You control which items to credit

Step 5: Select Reason​

Reason Dropdown:

Choose the appropriate reason:

  • Sales Return - Customer returned goods
  • Defective Goods - Quality issues with products
  • Price Adjustment - Pricing corrections or discounts
  • Billing Error - Invoice calculation mistakes
  • Short Delivery - Partial delivery but full amount charged

The selected reason appears on the credit note document and helps track credit patterns.

Step 6: Configure Credit Note Details​

Credit Note Date:

  • Auto-filled with today's date
  • Format: DD/MM/YYYY
  • Can be changed if needed
  • Determines accounting period for credit

Credit Note#:

  • Auto-generated format: CN-XXX
  • Click edit icon to customize
  • Must be unique
  • Cannot be changed after saving

Reference Number:

  • Optional field
  • Enter customer's return number or reference
  • Helps cross-reference with customer records

Notes:

  • Large text area for additional information
  • Document specific details about the credit
  • Visible on credit note PDF
  • Example: "Credit for 15 defective units returned on 05/10/2025"

Step 7: Review Items Tab​

System auto-populates based on credit type selected:

For Full Credit:

All invoice items appear with:

  • Item Name: Product description
  • Original Qty: Quantity from invoice
  • Credit Qty: Same as original (full credit)
  • Unit Price: Price from invoice
  • Discount(%): Discount from invoice
  • GST Rate: Tax rate from invoice
  • Amount: Calculated credit amount per line

All quantities pre-filled. Review for accuracy.

For Partial Credit:

Items table is editable:

  • Item Details: Select items being credited from dropdown
  • Original Qty: Shows quantity from invoice (read-only)
  • Credit Qty: Enter quantity being credited (editable)
  • Unit Price: Auto-filled from invoice
  • Discount(%): Apply additional discount if needed
  • GST Rate: Tax rate from original invoice
  • Amount: Auto-calculated based on credit quantity

Modifying Items:

  • Change Credit Qty to adjust credited quantity
  • Delete line items not being credited (trash icon)
  • Add additional items using (+) icon if needed

Step 8: Review Billing and Shipping Address​

System displays addresses from invoice:

Billing Address:

  • Your company's billing location
  • Includes GSTIN
  • Used for GST calculation

Shipping Address:

  • Customer's delivery location
  • Matches original invoice
  • Verify for inter-state vs intra-state GST

These are read-only from invoice. If address needs correction, adjust in customer master.

Step 9: Review Totals​

Summary section displays:

Sub Total:

  • Sum of all credited line items before tax
  • Base amount being credited

Total Tax:

  • GST amount being credited
  • Broken down by CGST, SGST, or IGST
  • Calculated proportionally based on credited items

Total Credit Amount:

  • Final credit note value
  • Sub Total + Total Tax
  • This amount will be available for applying to future invoices

Verify calculations match expectations before submitting.

Step 10: Add Terms & Conditions (Optional)​

Terms & Conditions Section:

  • Located below items table
  • Free text area
  • Add credit note specific terms
  • Example terms:
    • "This credit note is valid for 90 days"
    • "Credit can be applied to future invoices only"
    • "Goods must be returned to warehouse for credit processing"

Step 11: Attach Documents (Optional)​

Documents Tab:

  • Click Documents tab next to Items tab
  • Upload supporting files:
    • Goods return delivery challan
    • Quality inspection report
    • Customer email approving return
    • Photos of defective items
  • Supported formats: PDF, Excel, Word, Images
  • Files stored in Vault under Credit Note folder

Step 12: Save Credit Note​

Three options:

Cancel:

  • Discards all entered information
  • No credit note created
  • Returns to credit note list

Save as Draft:

  • Saves credit note without submitting
  • Status remains Draft
  • Can edit or delete later
  • No accounting impact yet
  • Use when: Information incomplete, awaiting approval

Submit:

  • Creates final credit note
  • Status changes to Pending
  • Accounting entries posted
  • Credit note number locked
  • Cannot be edited (only cancelled if needed)
  • Credits available for application

After submission, system displays success message and credit note detail view opens.

Verification​

Confirm credit note created correctly:

  • Credit note appears in Credit Note list with Pending status
  • Credit amount matches expected value
  • Customer name and invoice reference correct
  • All credited items listed accurately
  • GST calculation proportional to original invoice
  • Reason documented properly
  • Supporting documents attached

Next Steps​

After creating credit note:

  1. Download PDF: Generate credit note document for customer
  2. Apply Credits: Link credit to outstanding invoices
  3. Email Customer: Send credit note via email
  4. Update Records: Note credit in customer communication log

Common Scenarios​

Scenario 1: Full Order Return​

Customer returns entire order due to wrong items delivered.

  1. Select customer and invoice
  2. Choose Full Credit type
  3. Select reason: Sales Return
  4. Add note: "Customer received wrong product, returned full order"
  5. Attach return delivery challan
  6. Submit credit note

Credit creates for full invoice amount. Apply to invoice to zero out balance.

Scenario 2: Partial Defective Goods​

Customer received 100 units, 15 were defective.

  1. Select customer and invoice
  2. Choose Partial Credit type
  3. Select reason: Defective Goods
  4. In Items tab, find the item
  5. Change Credit Qty from 100 to 15
  6. Add note: "Credit for 15 defective units, customer keeping remaining 85 units"
  7. Attach quality report photos
  8. Submit credit note

Credit creates for 15 units only. Remaining invoice amount stays unpaid.

Scenario 3: Price Correction​

Invoice charged wrong price, customer agreed to pay corrected amount.

  1. Select customer and invoice
  2. Choose Partial Credit type
  3. Select reason: Price Adjustment
  4. In Items tab, adjust Unit Price to difference amount
  5. Or add discount percentage to correct
  6. Add note: "Price correction as per revised quotation dated 01/10/2025"
  7. Submit credit note

Credit reduces invoice by price difference. Customer pays corrected balance.

Tips & Best Practices​

Pro Tips

Always verify invoice number carefully before creating credit note to avoid crediting wrong invoice

Use Notes field generously to document specific circumstances for future reference and audit trail

For partial credits, double-check Credit Qty matches physically returned quantity to avoid discrepancies

Attach all supporting documents at creation time rather than later for complete documentation

Review GST amounts carefully for inter-state vs intra-state transactions to ensure compliance

Create draft credit notes for high-value items to get internal approval before finalizing

Send credit note PDF to customer immediately after creation for transparency and faster acceptance

Troubleshooting​

Issue: Customer not showing in dropdown

  • Verify customer exists and is active
  • Check spelling when searching
  • Ensure customer has at least one invoice
  • Contact admin if customer needs to be created

Issue: No invoices available for customer

  • Confirm customer has unpaid or partially paid invoices
  • Fully paid invoices won't appear in dropdown
  • Check if credit note already created for the invoice

Issue: Items not appearing in Full Credit mode

  • Verify invoice selected has line items
  • Check if invoice loaded correctly
  • Try refreshing page and selecting invoice again

Issue: GST calculation seems incorrect

  • Verify customer's GST state matches billing state
  • Check if HSN codes on items are correct
  • Confirm item-level GST rates match invoice
  • For inter-state, should show IGST; intra-state shows CGST+SGST

Issue: Cannot edit credit note after saving

  • Credit notes cannot be edited once submitted
  • If changes needed, mark existing credit note as cancelled
  • Create new credit note with correct information
  • Or apply credits to adjust invoice balance differently

Need help? Contact support at support@bizconnekt.com