Adjusting invoices

Credit Note vs Debit Note: What's the difference?

A credit note reduces what the customer owes. A debit note increases it. Both correct an invoice that has already been issued — they're how you adjust without voiding the original.

TL;DR

Credit notes lower the amount the buyer owes (after a return, discount, or over-billing). Debit notes raise it (after under-billing, additional charges, or a buyer claiming a refund). Both reference the original invoice number.

Credit Note (Credit Memo)

Reduces the invoice — issued by the seller

A credit note is a document the seller issues to reduce the amount the buyer owes. It's used for returned goods, post-invoice discounts, billing errors that overcharged the customer, or to write off a bad debt. The buyer applies it against future invoices or receives a refund.

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Debit Note (Debit Memo)

Increases the amount due — issued by either party

A debit note increases the amount owed. The seller may issue one to add charges (extra goods, freight, late-billed items). The buyer may issue one to formally claim a refund or return — effectively saying 'we're going to deduct this from your next invoice'.

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Credit Note vs Debit Note at a glance

Attribute	Credit Note (Credit Memo)	Debit Note (Debit Memo)
Direction	Decreases amount due	Increases amount due
Issued by	Seller (most common)	Seller or Buyer
Common reason	Return, discount, over-billing	Under-billing, extra charges, buyer's claim
Effect on AR/AP	Reduces AR for seller, AP for buyer	Raises AR for seller, AP for buyer
VAT / GST impact	Reverses output VAT on the original invoice	Adds output VAT on top of the original invoice
References	Original invoice number	Original invoice number
Buyer's action	Apply credit or get refund	Pay the additional amount
Typical example	CN-2026-0011 issued after a returned item	DN-2026-0007 for freight charges left off the original invoice

When to use which

Issue a credit note when…

You need to reduce a customer's balance on a previously issued invoice.

Customer returned goods (full or partial)
You agreed a post-invoice discount
Original invoice over-charged (wrong qty, wrong rate)
You're writing off an uncollectible balance

Issue a debit note when…

You need to add to an existing invoice — or formally request a credit from your supplier.

Original invoice under-charged the customer
Late-billed items (freight, packaging, hours)
Buyer formally rejecting goods to claim a refund
Recording a chargeback against a supplier

Frequently asked questions

Can't I just void the invoice and re-issue it?

Sometimes — but only if it hasn't been recorded in the buyer's books or filed for VAT. Once an invoice is in either party's accounting, you must adjust it with a credit note or debit note. Voiding it would create a paper-trail gap.

Is a credit note the same as a refund?

No. A credit note records the obligation to refund or to credit a future invoice. The actual cash refund (or applied credit) is a separate payment event. The credit note is the accounting/tax document; the refund is the money movement.

Who issues a debit note — buyer or seller?

Both can. In B2B practice the seller issues a debit note to charge more (e.g., late-billed freight). The buyer issues a debit note to formally tell the seller 'we're claiming this back' before the seller responds with a credit note.

Do credit and debit notes affect VAT/GST?

Yes. They adjust the output VAT/GST that was reported on the original invoice. A credit note reduces it; a debit note increases it. In most jurisdictions both notes must reference the original invoice number to be tax-valid.

Related comparisons

Invoice vs Receipt: What's the difference?

An invoice asks for payment; a receipt confirms it.

Pro Forma Invoice vs Commercial Invoice

Pro forma is a preview; commercial is the customs-grade real thing.

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