Introduction
A Sales Credit Note is used to reduce or cancel an invoice amount after it has been issued.
It is typically issued when adjustments are required after an invoice has been created. Common situations include:
Order changes after an invoice is issued
Goods returned by the customer
Damaged or defective items
Pricing errors (e.g. overcharged amount)
Discounts or adjustments given after invoicing
Full or partial cancellation of an invoice
Also known as a credit memo, this document serves as a formal notification that a certain amount has been credited back to the customer’s account. It ensures that both the seller’s and customer’s records are accurately updated following any revisions to the original transaction.
Step-by-Step Guide
Step 1: Choose a method to create the Credit Note
Method 1: Copy from an existing sales invoice
Navigate to Sales > Invoices > Locate your invoice > Click the three dots (⋯) next to View > Select 'Copy to...' > Credit Note.
Alternatively, click 'View' to open the invoice, then click the 'Action' button and select ‘Copy to Credit Note’.
💡 When using the ‘Copy to Credit Note’ method, details from the original invoice (e.g. customer, items and pricing) will be automatically filled. Simply review and update the necessary fields.
Method 2: Create manually
Navigate to Sales > Credit Notes > Click + New.
Step 2: Billing & Shipping
Customer: Choose an existing contact (same as the sales invoice).
Billing & Shipping: Optional. This section will be auto-filled if default billing and shipping attention/address have been set in the Contacts module.
Step 3: General Info
No.: Auto-generated based on your selected number format.
Reference No.: Optional. Fill in if applicable. If the Credit Note is created using the ‘Copy to Credit Note’ method, the invoice number will be auto-filled in this field.
Date: Defaults to today; change if needed.
Currency: Defaults to MYR; change if needed.
Description: Optional. A short note about this transaction; shown in reports.
Internal Note: Optional. For internal use only; not visible to customers.
Tags: Optional. Tag the transaction with department / branch / sales person / project & etc.
Title: Optional. This title appears on the document.
Step 4: Items & Apply Credit
Step 4.1: Items
Click +Item to add products or services.
For each item:
Select an existing product, or click +Add Product, or entering item details directly into the item description field
Review and update:
Account
Quantity, UOM, Stock Location (if applicable), Unit Price
Discount (in RM or %), if applicable
Tax, if applicable
The Amount is auto-calculated based on Quantity and Unit Price.
Subtotal, Discount, Tax, and Total will also be auto-calculated and shown at the bottom.
Step 4.2: Apply Credit
Apply credit to invoices.
If there is an existing invoice for the customer, it will be displayed here.
You may:
Select an invoice to apply the credit (partial or full), or
Leave it unselected to keep it as an outstanding credit
If the invoice has already been paid and you need to return money to the customer, use this Credit Note to create a Sales Refund.
👉 Refer to: Creating a Sales Refund
If there is an unpaid invoice, it will be listed under the Apply Credit section
Select the invoice to apply the credit, either partially or fully
If no invoice is selected, the amount will remain as an outstanding credit
📌 How to Fill in Items & Apply Credit
The way you enter items depends on your situation:
Select inventory items only when stock is physically returned
For price corrections, use adjustment or service items
Ensure the selected account matches the purpose
Enter only the difference amount (credit adjustment), not the full invoice amount — unless fully cancelling the invoice
👉 Each scenario below can be used for partial or full adjustment depending on the credit amount entered
Scenario 1: Price Adjustment / Discount (Service or Non-Inventory Item)
When to use: Wrong price charged, Discount given after invoicing, No goods returned
Item: Select the same service item, or Adjustment / service item (e.g. Price Adjustment, Discount Allowed)
Account: Same sales income account as the original invoice, or a Discount Given account if the adjustment represents a discount, depending on your company’s accounting treatment.
Stock Impact: No
Invoice Status: Outstanding, unpaid
Example (pricing error): Wedding Photography charged RM3,500 instead of RM3,000 → Enter RM500 in Credit Note
Invoice:
Credit Note:
Scenario 2: Price Adjustment / Discount on Inventory Item (No stock return)
When to use: Inventory item involved, but no physical stock return
Item: Use service-type item (e.g. Price Adjustment, Discount Allowed)
Account: Same sales income account as the original invoice, or a Discount Given account if the adjustment represents a discount, depending on your company’s accounting treatment.
Stock Impact: No
Invoice Status: Outstanding, unpaid
Example (pricing error): Overcharged RM2 per unit → Enter RM20 using service item to avoid stock impact in Credit Note
Invoice:
Credit Note:
Scenario 3: Inventory Item (Stock returned)
When to use: Customer returns goods
Item: Same inventory item
Account: Same sales income account as the original invoice, or a Sales Return account (if your business tracks returns separately)
Stock Impact: Yes (stock increases automatically)
Invoice Status: Outstanding, unpaid
👉 Can be partial return OR full return
Example: 5 defective bottles returned → Enter 5 units in Credit Note
Invoice:
Credit Note:
Step 5: Additional Info & Attachments
Remarks: Optional. Auto-filled if a default is set under Control Panel > Company Settings > Remarks.
Customs Form No., Customs K2 Form No. & Incoterms: Fill in only if this invoice involves international trade. These fields are used for customs and shipping documentation.
Attachments: Upload supporting documents, if any.
Tick Shared to send the attachment to the customer.
Unticked attachments are for internal use only.
Step 6: Save the Credit Note
Once reviewed, click Save to complete the credit note. The credit note will be recorded under Sales → Credit Note.
Example:
Invoice: RM3,500 → Credit Note created for RM500 adjustment and applied to the invoice → Invoice balance becomes RM3,000
Credit Note shows as applied (RM500)
Invoice balance is reduced by the credit amount, and remaining balance is still payable if not fully offset
Important Notes / Tips
Credit Note Field Explanations
The examples below illustrate how a credit note is applied to invoice(s) in different scenarios:
Example 1: Credit is fully applied to a single invoice, resulting in no remaining credit balance.
Example 2: Credit is applied across multiple invoices, with a remaining credit balance left unapplied.
Total (Credit Note)
The total of all line items in the credit note.
Total (Invoice)
The full amount of the invoice before any credit is applied.
Balance
The remaining unpaid amount of the invoice before applying this credit note.
Apply Amount
The portion of the credit note applied to a specific invoice.
Credit Total
The total value of the credit note available for allocation.
Credit Applied
The portion of the credit note that has been applied to invoice(s).
Credit Balance
The remaining credit that has not yet been applied to invoice(s).
Unapplied Credit Note (Offset or Refund)
If a Credit Note has remaining credit after being applied to invoices, the balance can be handled in two ways:
Offset against future invoices (Add Credit)
Refund to the customer via a Sales Refund
For example:
A RM150 Credit Note is partially applied RM100 to an invoice, leaving RM50 unused.
Offset against future invoices (Add Credit)
The RM50 can be carried forward and used to offset future invoices.
When creating a new invoice, i.e.: IV-00041:
Select the customer
Add your Products & Services under + Item
The available credit will appear in the Add Credit field for you to apply.
Note: If you missed applying the credit during new invoice creation, you can go to the Credit Note, click View, you will see the available invoices under the Apply Credit section, select and tick the invoice to be offset using the available credit.
Refund to the customer
If there are no future invoices to offset, the remaining amount can be refunded to the customer via a Sales Refund.
Refer to the guide on Creating a Sales Refund for detailed steps.
Questions:
How do I handle a situation where a paid invoice item is returned and replaced with another item (customer may pay the difference if applicable)?
Answer:
This is a return + new sale scenario. Do not edit the original paid invoice.
Step 1: Create Credit Note for Item A
Issue a Credit Note for the returned Item A (same value as original invoice item). This will record the return and create credit for the customer.
Create Credit Note for Item A following Step 1 to 4.1 above.
At Step 4.2 (Apply Credit), do not select any invoice.
Save the Credit Note. A confirmation message “Unapplied Credits” will appear — click OK to proceed.
Step 2: Create new invoice for Item B
Create a new Sales Invoice for Item B as usual.Step 3: Apply Credit to Invoice
Use the Credit Note to offset the new invoice (Item B) via the Apply Credit section.If Item B is higher in value, the customer pays the difference. If the value is the same, it fully offsets the invoice.
Example:
Item A - T-Shirt (return): RM100
Item B - Jacket (new): RM150
Customer to pay the difference: RM50Scenario Flow:
Original Paid Invoice:
Invoice No: IV-00048
Item A (T-Shirt): RM100 (to be returned)
Create Credit Note (Return Item A)
Credit Note No: CN-00007
Select Item A (T-Shirt) only: RM100
Credit Note amount: RM100
Create New Invoice (Item B) and Apply Credit
Invoice No: IV-00049
Item B (Jacket): RM150
Apply RM100 credit (CN-00007) to Invoice IV-00049
Remaining balance to be paid: RM50
Summary:
Credit Note (Item A: RM100) → New Invoice (Item B: RM150) → Apply Credit → Customer pays RM50 balance.
