In short: Credit note vs invoice, in one line: an invoice asks a client to pay you, and a credit note does the opposite: it reduces or cancels an amount a client already owes. If you invoice a client €500 and then issue a €100 credit note, they now owe €400. You use a credit note to correct, discount, or cancel an invoice you have already sent, rather than editing the original.
“Credit note” and “invoice” get muddled all the time, and it’s easy to see why: they look almost identical on the page. The difference is direction. An invoice adds to what a client owes you. A credit note takes away from it. This guide explains what each one is in plain terms, when to use which, and how the two fit together, with a simple worked example you can follow.
What is an invoice?
An invoice is a request for payment. It’s a dated, numbered document that tells your client what you delivered, what it costs, and how and when to pay. It’s also your record for tax time. If you want the full walk-through, see how to invoice a client as a freelancer.
The key thing for this comparison: an invoice increases the amount a client owes you. Send a €500 invoice and the client’s balance with you goes up by €500.
What is a credit note?
A credit note (sometimes called a credit memo) is the mirror image of an invoice. It’s a dated, numbered document that reduces an amount a client owes you, or cancels it altogether. Think of it as a negative invoice.
You issue one when something changes after an invoice has already gone out, for example:
- You overcharged, or made an error on the original invoice.
- You agreed a discount or a partial refund after the fact.
- The client returned something, or you cancelled part of the work.
- You need to cancel a sent invoice entirely.
A credit note doesn’t ask for money. It records that the client owes you less than the invoice first said.
Is a “credit invoice” the same as a credit memo?
Yes. They are different names for the same document, and which one you hear depends mostly on where you are and which software you use:
- Credit note is the usual term in the UK, Ireland and most of the EU.
- Credit memo (short for credit memorandum) is the common term in the US.
- Credit invoice is a looser, everyday way of saying the same thing, usually when someone means “the credit that goes against an invoice”.
All three describe a dated, numbered document that reduces or cancels an amount a client owes you. So if a client, an accountant, or a piece of software asks you for a credit memo or a credit invoice, a credit note is what they mean.
Credit note vs invoice: when to use which
Same shape, opposite job. Here’s the difference at a glance:
| Invoice | Credit note | |
|---|---|---|
| What it does | Requests payment | Reduces or cancels an amount owed |
| Effect on the balance | Increases what the client owes | Decreases what the client owes |
| When you send it | When work is done and payment is due | After an invoice, to correct or cancel it |
| Typical trigger | You delivered the work | An error, discount, return, or cancellation |
| The amount | A positive charge | A reduction (in effect, a negative amount) |
The simple rule: if you want to be paid more, that’s an invoice. If a client should pay less than an invoice already said, that’s a credit note.
Tally Crow issues credit notes that mirror your invoices and adjust the balance for you.
Start invoicing freeA worked example: a €500 invoice and a €100 credit note
Say you’re a freelance designer. On 6 August 2026 you invoice a client €500 for a logo project. That invoice is a request for €500.
A week later you both agree the second logo concept wasn’t needed, so you knock €100 off. The clean way to handle this is a €100 credit note linked to that original invoice.
Now the maths is simple:
- Original invoice: €500
- Credit note: −€100
- Amount the client owes: €400
The €500 invoice still exists, unchanged, in your records. The €100 credit note sits alongside it. Together they show the client owes €400, and anyone looking at your books can see exactly why. Nothing was quietly rewritten.
What the credit note itself shows
A credit note is its own document, not a note added to the invoice. Say that €500 invoice was €500 plus VAT at 18%. The credit note reducing it by €100 carries these fields:
| Field | On this credit note |
|---|---|
| Credit note number | CN-2026-014, its own number, separate from your invoice numbering |
| Date issued | 13 August 2026 |
| The invoice it relates to | Invoice 2026-007, dated 6 August 2026 |
| Client | The client’s name, address and VAT number, as on that invoice |
| Line credited | “Logo concept 2, not required”, 1 × €100.00 |
| Subtotal credited | €100.00 |
| VAT (same rate as the invoice, 18% here) | €18.00 |
| Total credited | €118.00 |
Those first three rows are what make it auditable: its own number, so it can never be confused with an invoice, and a reference back to the original invoice, so the pair can be read together. The lines, VAT and total then say exactly what is being credited and why.
The maths reconciles either way you look at it. Before VAT, a €500 invoice less a €100 credit note leaves €400. With VAT, a €590 invoice less a €118 credit note leaves €472 due, which is that same €400 plus its VAT.
Why issue a credit note instead of editing the invoice?
It’s tempting to just open the €500 invoice, change it to €400, and resend. Don’t. Once an invoice has been sent, editing it causes problems:
- Two documents, one number. If the client saved the original €500 PDF and you resend a €400 version under the same number, there are now two different invoices claiming to be the same one. That’s a mess at tax time and a red flag in an audit.
- Your records stop adding up. Your totals, and your client’s, no longer match a single source of truth.
A credit note fixes this cleanly. The original invoice stays exactly as it was sent, and the credit note records the change separately, with its own number and date. It’s the auditable way to correct a sent invoice, which is why proper invoicing tools lock an invoice once it’s sent and route corrections through a credit note.
This is how Tally Crow handles it. Once an invoice is marked as sent, its financial fields are locked, so one invoice number can never produce two different PDFs. To adjust it, you issue a credit note. You can link that credit note to the original invoice, and if a client’s credit isn’t fully used up, Tally Crow lets you deduct the unapplied, currency-matched credit on their next invoice, so it isn’t forgotten. For the click-by-click steps, see how to issue a credit note.
Does a credit note change the VAT?
Yes. If the original invoice included VAT, the credit note reduces the VAT in proportion, not just the headline amount.
In the worked example above, the €500 invoice might have been €500 plus VAT. The €100 credit note then credits €100 plus the VAT on that €100, so the tax on your books reflects what the client is actually being charged. This matters, because your VAT records should show the corrected figures, not the original ones.
You don’t have to work the VAT out by hand. Because a credit note in Tally Crow has the same shape as an invoice, it carries VAT and any currency the same way, so the adjusted amounts are calculated for you.
How do you actually issue a credit note?
The short version: give it its own number, reference the invoice it corrects, credit only the lines that are changing, carry the VAT across at the same rate, and send your client the PDF.
That is a job in its own right, so it has its own guide. If you need to know how to write one, how to make and send it, or how to record it in your books, see how to issue a credit note. This page stays on what the two documents are and how they differ.
Keep invoices and credit notes in one place
You don’t need accounting software you have to learn to handle this properly. You need to send clear invoices, and when something changes, issue a tidy credit note that keeps your records straight. Tally Crow does both: professional invoices with VAT and any-currency support, and first-class credit notes you can link to the original invoice and deduct later, starting free (2 invoices a month, no credit card). See what’s included on the features page.
Frequently asked questions
Quick answers to common questions.
No. The two look alike and carry many of the same fields, but they do opposite jobs. An invoice is a request for payment and increases what a client owes you. A credit note is not a request for payment: it reduces or cancels an amount you have already invoiced. You will sometimes see a credit note called a credit invoice or a credit memo, which are the same document under a different name.
The supplier does, meaning whoever sent the original invoice. If you invoiced the client, you issue the credit note against your own invoice, with its own number and a reference back to that invoice. A client cannot issue one to reduce what they owe you, they would ask you to raise it.
Not quite. A credit note reduces what a client owes you on paper. If the client hasn’t paid yet, it simply lowers the amount due. If they had already paid in full, the credit note records that you owe them that amount back, which you can then refund or apply to a future invoice. A refund is the money moving; the credit note is the document behind it.
Yes. If the original invoice included VAT, the credit note reduces the VAT in proportion to the amount you’re crediting, not just the pre-tax figure. Your VAT records should reflect the corrected total.
Issue a credit note when a client should pay less than an invoice you’ve already sent, because of an error, a discount, a return, or a cancellation. Send a new invoice when you’re charging for something additional. If you’re correcting a mistake, credit the original and, if needed, raise a fresh invoice with a new number.
It can be for more than a single invoice’s value, and any credit the client doesn’t use straight away sits as unapplied credit. In Tally Crow, that currency-matched credit can be deducted on the client’s next invoice, so it isn’t lost.
Only if they’ve already paid. A credit note reduces what a client owes you. If they hadn’t paid yet, it just lowers their balance. If they had already paid the full invoice, the credit note represents an amount you owe back to them.
Yes. A credit note is its own document, so it gets its own unique number and date, separate from the invoice it relates to. Linking it to the original invoice keeps the trail clear.
