A credit note (also called a credit memo) records that you have credited a customer — for an overcharge, a goodwill adjustment, a returned item, or a renegotiated price. Issue one from Credit Notes, optionally linked to the invoice it relates to. The credit can then be applied to reduce an open invoice balance, or refunded as cash.

• Apply to an invoice — the credit reduces the amount due on an open invoice. The customer pays less; no money moves. This is the most common path.
• Refund — if the customer already paid, you return cash. A refund moves money out and is always reviewed by a person (see Refunds).

Open the credit note and choose Apply to invoice. If the credit note was raised against a particular invoice, that invoice is already the target. Otherwise you pick one from the list: it shows the customer's open invoices with their balances, so you choose by invoice number rather than by typing an id. Only invoices that can still take a credit appear, in the credit note's own currency. Enter the amount, add a note if it helps whoever reads the record later, and apply.

A credit is refused for a moment while a refund on the same invoice is being processed. That is deliberate: it stops the same customer being compensated twice, once in credit and once in cash. Wait a moment and apply again.

Applied a credit to the wrong invoice, or for the wrong amount? Open the credit note, find the application in Applied to invoices, and choose Reverse. The balance goes back onto the invoice, the credit returns to the note so you can apply it somewhere else, and the original application stays on the record marked as reversed. Nothing is deleted: the history of what was applied, and what was taken back, is part of the audit trail.

Reversing is also the way out of an invoice you can no longer void. An invoice with credit applied to it cannot be voided, because the credit would be stranded against a cancelled document. Reverse the applications first, then void the invoice, which preserves its number and its history.

Milestone invoices work the same way. A credit that covers a milestone invoice in full gives the amount it billed back to the quote, so that work can be billed again. Reversing that credit bills the work on the original invoice again.

A credit note starts as a draft, becomes issued when finalized, moves to partially applied or applied as you draw it down against invoices, and can be voided if issued in error. You are notified when a credit note is issued against one of your invoices.