What is a credit note: definition, uses, examples and differences

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If you've ever issued an invoice and later discovered a mistake, or if a customer returned part of the purchase, you've likely encountered the concept of a credit note . It's not a strange invention or an administrative whim: it's the formal tool for recording a decrease in the value of a sale that has already been invoiced and, therefore, recorded in your accounting.

Before going into detail, it's important to clarify something: in Spain, it's common to use a corrective invoice to amend issued invoices, although many people still refer to them as "credit notes." In other Spanish-speaking countries, the credit note is formally used (and with very specific requirements). Below, you'll find when it's used, what it should contain, and how to issue it correctly depending on the country, with examples and differences compared to other documents.

What is a credit note?

A credit note is a legally valid commercial document used to reduce the amount of an invoice that has already been issued. Its purpose is to officially reflect subsequent discounts, merchandise returns, pricing or quantity errors, and, in general, any situation that requires reducing the original invoice amount without removing it from the records.

It is generated by the seller or supplier and sent to the customer as proof of the discount or partial or total cancellation. From an accounting perspective, its effect is clear: it records a credit balance for the customer and a lower revenue for the seller, preventing discrepancies that could lead to audits and penalties if not corrected.

When is a credit note used?

Typical situations that justify a credit note are easily recognizable in everyday life. Among the most common scenarios are the return of goods due to defects or dissatisfaction, the detection of billing errors (amount, quantity, data), the application of discounts that were not initially included, and the reversal of transactions that must be fully or partially canceled.

• Product returns: the customer returns merchandise and it is their responsibility refund fully or partially.
• Billing errors: an incorrect price or quantity was billed and the following applies: downward correction.
• Subsequent discounts: a bonus or discount is agreed upon once invoice already issued.
• Cancellation of transactions: situations in which it is necessary to invalidate totally or partially the economic effect of the bill.

Important: In many countries, issued invoices cannot be deleted or destroyed. Therefore, credit notes (or corrective invoices, depending on local regulations) are used as adjustments to maintain a clean and consistent accounting record.

object lesson

Imagine that Company A invoices Company B for a complete service for €1.000. B reviews the invoice and discovers that it actually contracted a reduced package for €800. After confirming this, A issues a credit note for €200 linked to the original invoice. This ensures the customer receives their credit balance and the seller corrects the recorded income, all in a traceable and legal manner , simplifying accounts receivable and payable management.

If the complete cancellation of the sale were to be carried out, the issuer would generate a credit note for the total amount in negative , referencing the invoice that is left without economic effect.

Minimum requirements and content

Although there is no single universal format, there are several elements that are usually essential for a credit note to be properly prepared and compliant with applicable regulations. The goal is for the document to be clear, sequentially numbered , and easy to audit.

• Indicate that it is a Credit note or equivalent document permitted.
• keep correlative numbering that plays in your series.
• To accurately reference the original invoice number which is corrected.
• reflect the negative amounts (because they reduce the tax base and taxes).
• Repeat the essential sender and receiver information as shown on the corrected invoice.
• Detail the reason (return, discount, error, cancellation).

In addition, it's advisable to keep the original invoice in case the tax authorities require it , and send the credit note to the client so they can also adjust their accounting . This way, both sides of the transaction balance.

Differences with the corrective invoice

Credit notes and corrective invoices serve similar purposes, but they are not the same. In Spain, the standard instrument for correcting invoices is the corrective invoice . This can be positive or negative (it serves to increase or decrease the original amount) and, furthermore, allows for the correction of invoices after the VAT settlement for the corresponding quarter.

In contrast, a credit note, where formally recognized, is always used in a negative sense (it reduces the value of the transaction). Many regulatory frameworks do not allow a credit note to correct invoices for periods that have already been declared and settled ; in such cases, a corrective invoice is required according to local regulations.

Credit note vs. debit note

Another key distinction: a credit note reduces the value of an issued invoice, while a debit note increases it . A debit note is used when an item was overlooked, late payment interest needs to be charged, or the amount was underestimated. In short, it benefits the seller (who receives more money) and represents an additional charge for the customer.

If a debit or credit note was issued in error and needs to be reversed, in accounting practice this is usually resolved by issuing a document of the opposite sign for the same amount, so that the balance returns to its correct state and there is a record of the correction.

Types of credit notes

In practice, two main categories are distinguished: commercial and banking . The former are the usual ones between companies and clients or suppliers; the latter are issued by financial institutions to reflect payments or income in favor of a client.

• Commercial notes: originating from sales transactions, they adjust prices, discounts or Returns.
• Bank notes: issued by banks to leave a trace of a allowance on the customer's account.

How to create a credit note step by step

The practical steps are similar in all environments: define the reason, identify the invoice to be corrected, calculate the exact amount to deduct , and issue the note with the format and fields required by your country. Even so, each jurisdiction has nuances that should be respected.

Spain: preferential use of the corrective invoice

In Spain, it is not permitted to delete an issued invoice . To correct amounts or data, a corrective invoice is used, which must state the reason, reference the original invoice, adjust the tax base and VAT , and follow the specific numbering system. In common parlance, many people refer to it as a "credit note," but the legally recognized instrument is the corrective invoice , which can be issued for positive or negative discrepancies.

Peru: Issuance via SUNAT or PSE

In Peru, a credit note is an electronic document issued to cancel or adjust transactions. It can be generated on the SUNAT website or through an Electronic Service Provider (PSE). Generally, you will need the note number, the issuer and recipient information, the issue date , details of the reason for the change, and the amount to be deducted.

1. Access the SUNAT portal and log in with your RUC, username and SOL password.
2. In the menu, go to SEE SOL > Electronic Invoice > Issue credit note.
3. Configure the issue: the date is usually filled in with today's date (limited retroactive margin of up to two days).
4. Choose the type of impact: cancellation of transaction, refund, error in RUC, etc.
5. Enter the invoice number to be adjusted, detail the reason, and review the preliminary summary.
6. Confirm and issue. The system will generate the corresponding electronic receipt.

If you work with a PSE, the flow is similar; only the interface and certain operational steps may vary, so it is advisable to follow the provider's guide.

Chile: DTE and SII criteria

In Chile, credit and debit notes are part of the Electronic Tax Documents (DTE) . Credit notes link and correct electronic invoices when it is necessary to cancel them in whole or in part, apply discounts, or make other adjustments. According to the SII (Chilean Internal Revenue Service), there is no rigid maximum or minimum timeframe for issuing a credit note, but to avoid VAT, a period of up to three months is generally considered , in accordance with current regulations.

Remember that deleting issued invoices is illegal; therefore, corrections must always be made via a credit or debit note (DTE). If you need to reverse an incorrectly issued note, the accounting records are stabilized with a corresponding credit or debit note.

Mexico: CFDI type E (Expense)

In Mexico, a "credit note" corresponds to a CFDI of type E (Expense) . It is used for returns, discounts, rebates, or corrections of errors that reduce revenue previously invoiced with a CFDI of type I (Income). A key point is the "CFDI Usage" G02 (Returns, discounts, or rebates) and its proper relationship with the original income CFDI.

• Relate the CFDI “E” to the CFDI “I” it affects, including each in the corresponding node UUID related.
• Register the same way to pay that was recorded in the CFDI of income.
• If the adjustment applies to several income CFDIs, you can issue a single CFDI “E” for the total, relating one per each UUID affected.

Attention: An outgoing CFDI does not cancel an electronic invoice on its own, except in the case of advance payments . If a CFDI needs to be invalidated, the correct procedure is to cancel it according to SAT rules and, if applicable, issue a new document with the relationship code “04 – Replacement of previous CFDI”.

Good practices and mistakes to avoid

Beyond the formalities, there are habits that greatly simplify life and prevent headaches during audits. A first golden rule is to never delete an issued invoice. Corrections are documented with a credit note (or amended invoice, depending on the country), always referencing the original invoice and maintaining the accounting record.

• Accurately calculate the amount to be subtracted, including the effect on taxes if apply.
• Describe the reason clearly: full or partial refund, discount not applied, pricing error, etc.
• Keep a copy of the documents and make sure the client receive the note to adjust their accounting.
• Use software or tools that respect the correlative numbering and generate the required fields for each jurisdiction.

One last point: don't confuse a credit note with the management of quotes or pro forma invoices . Pro forma invoices are for informational purposes; if an error appears after invoicing, the issued invoice must be corrected with the appropriate document.

FAQ

Does the credit note always have a negative value?

Yes, its purpose is to reduce the amount of a previous invoice. When the correct procedure is to overcharge for an omitted item or to make an upward correction, then a debit note is appropriate.

Can I use it after declaring the VAT?

It depends on the country. In Spain, the corrective invoice is the appropriate instrument for adjusting already settled periods . In other countries, the rules vary: check the local regulations to avoid filing errors.

Can it be issued retroactively?

There are limits. For example, the Peruvian government portal allows up to two days for retroactive dating. In Chile, there is no strict limit on issuance, but there are conditions if the note is to avoid VAT (reference period of up to 3 months).

Does it serve to completely cancel a transaction?

Yes, provided the applicable legal framework allows it, you can issue a credit note for the full amount of the invoice and render it ineffective. In Mexico, this does not replace the CFDI cancellation procedure , except in the case of advance payments; in those cases, you must follow the SAT's procedures.

What is the difference between this and a corrective invoice?

The amended return is the most versatile instrument in Spain: it can be positive or negative and can even correct periods already declared. The credit note, where it exists, is always negative and has more time or procedural limitations depending on the specific regulations.

Who sends and who receives?

It is issued by the seller or supplier and received by the customer. Both must record it: the issuer as an adjustment to their income and the recipient as a decrease in their expense or debt, as appropriate.

Quick checklist for issuing it correctly

• Confirm the reason and the scope (total or partial) of the adjustment.
• Locate the original invoice and its numbering.
• Calculate base, taxes and amounts to be subtracted.
• Issue the note indicating referencia to the invoice and amounts in negative.
• Send to the client and file with the documentation related.

A credit note is simply an administrative lifeline to ensure your accounts balance without erasing any trace. If you respect the reference to the original invoice, use the fields required by your country (for example, the CFDI de egreso with G02 usage in Mexico, or the corrective note in Spain), maintain sequential numbering, and clearly explain the reason, your accounting will be up-to-date according to Spanish accounting principles , you'll avoid unwanted fines, and, incidentally, improve your relationship with your client by providing formal documentation of any necessary refunds, discounts, or corrections.