Once an invoice has gone to the customer, don't edit it. Issue a credit note for the wrong amount and, if needed, a new invoice for the right one. Then allocate the credit note to the invoice it relates to.
Edit, void or credit?
| Situation | Use |
|---|---|
| Draft invoice, not sent | Edit it |
| Approved but never valid (wrong customer, raised in error, not sent) | Void it |
| Sent to the customer, amount or items wrong | Credit note, then a new invoice if needed |
| Customer returns goods or you agree a discount after the sale | Credit note |
Issue a credit note to a customer
- Open the invoice you need to correct.
- Choose Invoice options, then Add credit note. Xero copies the invoice lines. VERIFY PATH
- Change the lines so the credit note shows only the amount you are reversing.
- Use the same tax rate as the original invoice line.
- Approve and send it to the customer.
Starting from the invoice links the two automatically. If you create a credit note from Sales, Invoices, New credit note instead, you must allocate it yourself.
A credit note must be allocated to an invoice or refunded. An unallocated credit note sits on the customer's account and makes Aged Receivables look wrong.
Refunds
If the customer had already paid and you refund the money, open the credit note and record the refund against the bank account you paid it from. Then match the refund on the bank reconciliation screen when it comes through.
Supplier credit notes
If a supplier credits you, enter it under Purchases, then Bills, then New credit note, and allocate it to the bill it relates to. Attach the supplier's credit note document.
The South African detail
If you are VAT-registered, a credit note that changes the VAT on an earlier tax invoice is a formal document under the VAT Act. It must say "Credit Note", show both parties' details and VAT numbers, refer to the original tax invoice, and give the amount of the credit, the VAT on it and a short reason for the credit. Xero's credit note template covers most of this once your contact details are complete. Ask your accountant to check your credit note template once.