A credit note is a document a seller issues to reduce an amount previously charged on an invoice.
You may need one when goods are returned, a customer was overcharged, part of a service was cancelled or an agreed discount was missing from the original invoice.
What does a credit note do?
Suppose you issued an invoice for ₦500,000, but later agreed to reduce the price by ₦100,000. A credit note records the ₦100,000 reduction. The customer now owes ₦400,000, subject to any related VAT adjustment.
A credit note does not normally replace the original invoice. It links back to it and explains the adjustment.
When should you issue a credit note?
Common reasons include:
- returned or damaged goods
- an invoice raised for too much
- a duplicated item
- a cancelled part of a service
- a discount agreed after invoicing
- VAT calculated on the wrong taxable amount
If the entire invoice was created by mistake and no transaction took place, your accounting process may instead require the invoice to be voided. Keep a record rather than deleting it.
What should a credit note contain?
- the heading Credit Note
- a unique credit note number
- date of issue
- seller's name and contact details
- customer's name
- reference to the original invoice
- reason for the credit
- amount being reduced
- VAT adjustment where applicable
- revised balance
Use a separate sequence such as CN-2026-0001.
Credit note example
CREDIT NOTE
Credit Note Number: CN-2026-0006
Original Invoice: INV-2026-0092
Reason: Two damaged office chairs returned
| Description | Amount |
|---|---|
| Value of returned chairs | ₦170,000 |
| VAT adjustment at 7.5%, where applicable | ₦12,750 |
| Total credit | ₦182,750 |
| Account summary | Amount |
|---|---|
| Original invoice total | ₦913,750 |
| Less credit note | ₦182,750 |
| Revised balance | ₦731,000 |
Credit note vs refund
A credit note changes the customer's account. A refund returns money.
If the customer has not paid yet, the credit note may simply reduce the amount due. If the customer has already paid, you may issue the credit note and then refund the overpayment or apply it to a future invoice, depending on what you agree.
VAT and record keeping
Where VAT is involved, keep the credit note with the original VAT invoice and make sure the adjustment is reflected correctly in your records and return. Tax treatment can depend on the circumstances, so ask a qualified tax adviser when the value or transaction is significant.
Do not edit an already issued invoice in a way that hides the original amount. The credit note provides a clear audit trail.
Credit note checklist
- reference the original invoice
- explain the reason clearly
- use a unique credit note number
- show the amount and any VAT adjustment
- update the customer's balance
- send a copy to the customer
- keep both documents in your records
For the opposite type of adjustment, read our debit note guide. You can also review the invoice numbering guide and create the original invoice online.