Create Credit Note

Learn how to create credit notes in Digit Tally for handling refunds, product returns, price adjustments, and invoice corrections.

What is a Credit Note?

A credit note is a document issued to reduce or cancel the amount owed by a customer. It's essentially a negative invoice that:

• Credits the customer's account
• Reduces outstanding invoice balance
• Provides formal record of refund or adjustment
• Can be applied to future purchases
• Complies with Nigerian tax regulations

[SCREENSHOT: Sample credit note document]

When to Issue Credit Notes

Common Scenarios

Scenario	Description	Example
Product Return	Customer returns goods	10 laptops returned due to wrong specs
Service Cancellation	Service not delivered	Website design project cancelled
Pricing Error	Invoice had wrong price	Charged NGN 100k, should be NGN 80k
Damaged Goods	Products arrived damaged	5 units damaged in transit
Quality Issues	Service/product below standard	Web design not meeting requirements
Goodwill Gesture	Customer satisfaction	Compensation for delay
Overpayment	Customer paid too much	Customer paid NGN 150k for NGN 100k invoice
Early Payment Discount	Discount given after invoice sent	5% discount for paying within 7 days

[SCREENSHOT: Credit note use cases illustrated]

Accessing Credit Note Creation

From Invoice (Recommended)

1. Navigate to https://sales.digit-tally.io
2. Go to Invoices and open the invoice
3. Click Issue Credit Note button
4. Credit note form opens with invoice details pre-filled

[SCREENSHOT: Issue Credit Note button on invoice]

From Credit Notes Section

1. Go to Credit Notes in Sales App sidebar
2. Click + Create Credit Note
3. Manual credit note form opens

[SCREENSHOT: Credit Notes section with Create button]

Credit Note Creation Form

Complete the form with credit note details.

[SCREENSHOT: Credit note creation form]

Step 1: Link to Invoice

Credit notes are usually linked to an existing invoice.

Selecting Invoice

Field	Description	Required
Invoice	Select invoice to credit	Yes
Customer	Auto-fills from invoice	Auto
Original Amount	Invoice total	Auto

Steps:

1. Click Select Invoice dropdown
2. Search by invoice number or customer name
3. Select the invoice
4. Invoice details populate automatically

[SCREENSHOT: Invoice selection dropdown]

Standalone Credit Note

For credits not linked to specific invoice:

1. Uncheck Link to Invoice
2. Select customer manually
3. Enter credit amount and reason
4. Use for general customer credits

Step 2: Credit Note Details

Configure basic credit note information.

Credit Note Information

Field	Description	Default/Example
Credit Note Number	Auto-generated unique number	CN-001
Credit Note Date	Date of issue	Today's date
Reference	Your internal reference	Return #123, RMA #456
Reason	Why credit is being issued	Product return, Pricing error

[SCREENSHOT: Credit note details section]

Credit Note Number

• Format: CN-001, CN-002, etc.
• Customizable prefix in Settings
• Sequential numbering
• Cannot be duplicated

Reason for Credit

Select or enter reason:

Preset Reasons:

• Product return
• Damaged goods
• Service cancellation
• Pricing error
• Quality issues
• Goodwill/compensation
• Overpayment
• Duplicate invoice
• Custom reason

[SCREENSHOT: Reason dropdown with options]

Step 3: Credit Amount

Specify how much to credit the customer.

Full Credit

To credit entire invoice:

1. Amount auto-fills with full invoice amount
2. Keep default amount
3. All invoice items included
4. Invoice will be fully credited

Example:

Invoice INV-001: NGN 100,000
Credit Note CN-001: NGN 100,000
Net Amount Owed: NGN 0

[SCREENSHOT: Full credit note for invoice]

Partial Credit

To credit part of invoice:

Method 1: Select Specific Items

1. Invoice items listed in table
2. Check items to credit
3. Adjust quantities if needed
4. Credit amount calculates automatically

Example:

Invoice Items:
☑ Laptop x 5 @ NGN 400,000 = NGN 2,000,000 (return all)
☐ Mouse x 5 @ NGN 10,000 = NGN 50,000 (keep)

Credit Amount: NGN 2,000,000

[SCREENSHOT: Item selection for partial credit]

Method 2: Enter Custom Amount

1. Enter specific credit amount
2. Add description of what's being credited
3. Less granular but faster

Example:

Credit Amount: NGN 50,000
Description: Refund for 2 damaged laptops

Multiple Item Quantities

For partial quantity returns:

Original Invoice Item	Quantity Invoiced	Quantity Returned	Credit Amount
Dell Laptop	10	3	NGN 1,200,000
HP Laptop	5	0	NGN 0
Mouse	15	5	NGN 50,000

Total Credit: NGN 1,250,000

[SCREENSHOT: Partial quantity credit note]

Step 4: Tax Adjustments

Handle VAT and WHT on credit notes.

VAT on Credit Notes

Credit notes should include VAT if original invoice had VAT:

VAT Calculation:

Original Invoice:
Subtotal: NGN 100,000
VAT 7.5%: NGN 7,500
Total: NGN 107,500

Credit Note (Full):
Subtotal: -NGN 100,000
VAT 7.5%: -NGN 7,500
Total: -NGN 107,500

VAT Options:

• Include VAT (recommended) - VAT included in credit
• Exclude VAT - Only credit net amount
• Zero-rated - No VAT applicable

[SCREENSHOT: VAT settings on credit note]

WHT on Credit Notes

If original invoice had WHT, handle on credit note:

WHT Options:

1. Reverse WHT - If customer refunds WHT to you
2. Keep WHT - Customer keeps WHT amount (you issue WHT certificate)
3. Adjust Calculation - Recalculate based on new amount

Example:

Original Invoice:
Amount: NGN 100,000
WHT 10%: -NGN 10,000
Net Paid: NGN 90,000

Full Credit Note:
Credit: NGN 100,000
Customer Refunds: NGN 90,000 (net amount they paid)
You keep WHT certificate: NGN 10,000 (for tax filing)

[SCREENSHOT: WHT adjustment on credit note]

Nigerian Tax Compliance

Credit notes must properly account for VAT. You can reclaim credited VAT on your VAT returns. Consult your accountant for proper WHT handling.

Step 5: Credit Note Items

Detail what's being credited.

Item Table

For each credited item:

Column	Description	Example
Item Description	What's being credited	Dell Laptop - Returned
Quantity	Number of units	3
Unit Price	Price per unit	NGN 400,000
Amount	Calculated credit	NGN 1,200,000
Tax	VAT percentage	7.5%
Total	Amount with tax	NGN 1,290,000

[SCREENSHOT: Credit note items table]

Adding Items

1. Click + Add Line for multiple items
2. Enter description and quantities
3. Prices auto-fill from invoice (if linked)
4. Totals calculate automatically

Item Descriptions

Be specific in descriptions:

Good Descriptions:

• ✅ "5x Dell Laptops returned - Wrong specifications"
• ✅ "Price adjustment - Promotional discount applied"
• ✅ "3x Damaged monitors - Customer #12345"

Poor Descriptions:

• ❌ "Products"
• ❌ "Return"
• ❌ "Refund"

Step 6: Credit Note Totals

Understanding credit note calculations.

Credit Note Summary

Subtotal: NGN 100,000 (credit)
VAT 7.5%: NGN 7,500 (credit)
--------------------
Total Credit: NGN 107,500

Original Invoice: NGN 107,500
Less: Credit Note: -NGN 107,500
--------------------
New Balance: NGN 0

[SCREENSHOT: Credit note totals section]

Application Options

Choose what happens to the credit:

Option	Description	When to Use
Apply to Invoice	Reduce invoice balance	Most common
Customer Credit	Keep as credit for future use	Regular customer
Refund	Return money to customer	One-time customer

[SCREENSHOT: Credit application options]

Step 7: Additional Information

Add notes and explanations.

Internal Notes

• Not visible to customer
• For your records
• Track return authorization
• Note restocking details

Customer Message

Visible on credit note:

Example Messages:

"Credit issued for return of 3 Dell Laptops per your request on Jan 28, 2026."

"We apologize for the inconvenience. This credit can be applied to your next purchase."

"Price adjustment credit as discussed. Thank you for bringing this to our attention."

[SCREENSHOT: Notes and message fields]

Step 8: Preview and Issue

Review before issuing credit note.

Preview Credit Note

1. Click Preview button
2. Review credit note as customer will see it
3. Check:
   • Customer details correct
   • Credit amount accurate
   • Items and descriptions clear
   • Calculations correct
   • Reason clearly stated

[SCREENSHOT: Credit note preview]

Issue Credit Note

Option 1: Issue and Send

1. Click Issue and Send
2. Credit note created and email opens
3. Send to customer immediately

Option 2: Issue Only

1. Click Issue Credit Note
2. Credit note saved
3. Send later

What Happens:

• Credit note number assigned
• Invoice balance updated (if linked)
• Customer account credited
• Transaction recorded in accounting
• Email notification sent (if selected)

[SCREENSHOT: Issue credit note buttons]

Sending Credit Notes

Deliver credit note to customer.

Email Credit Note

Email Template:

Subject: Credit Note [CN-001] for Invoice [INV-001]

Dear [Customer Name],

Please find attached Credit Note [CN-001] for NGN [Amount].

This credit has been issued for: [Reason]

Credit Note Details:
- Credit Note Number: CN-001
- Date: [Date]
- Amount: NGN [Amount]
- Original Invoice: INV-001

This credit has been applied to Invoice [INV-001]. Your new balance is NGN [New Balance].

[If customer credit: This amount has been credited to your account and can be applied to future purchases.]

[If refund: Please allow 3-5 business days for the refund to reflect in your account.]

Please let us know if you have any questions.

Best regards,
[Your Name]

[SCREENSHOT: Credit note email template]

Download PDF

Download credit note for:

• Printing
• Manual email
• Customer portal
• Accounting records

Share Options

• Email - Send via email
• WhatsApp - Share via WhatsApp
• Download - Save as PDF
• Print - Physical copy
• Link - Generate public link

[SCREENSHOT: Credit note share options]

Credit Note Effects

Understanding what happens when credit note is issued.

On Invoice

If Full Credit:

• Invoice status changes to "Credited"
• Balance becomes NGN 0
• Invoice marked as resolved
• Payment received (if any) must be refunded

If Partial Credit:

• Invoice balance reduces
• New balance calculated
• Invoice remains "Partially Paid" or "Pending"
• Customer owes reduced amount

[SCREENSHOT: Invoice with credit note applied]

On Customer Account

• Customer's outstanding balance decreases
• Credit note listed in customer history
• If credit exceeds balance, customer has credit balance
• Credit can apply to future invoices

On Accounting

• Revenue reduction recorded
• VAT reclaim noted
• Bank account adjustment (if refund)
• Journal entries created automatically

[SCREENSHOT: Accounting impact of credit note]

Managing Issued Credit Notes

Credit Notes List

View all credit notes:

1. Go to Credit Notes in sidebar
2. See all credit notes with:
   • Credit note number
   • Customer
   • Amount
   • Date
   • Status (Applied, Pending, Refunded)
   • Linked invoice

[SCREENSHOT: Credit notes list view]

Credit Note Status

Status	Meaning
Draft	Created but not issued
Issued	Sent to customer
Applied	Applied to invoice
Refunded	Money returned to customer
Pending	Awaiting application
Void	Cancelled credit note

Viewing Credit Note Details

Click any credit note to see:

• Full credit note details
• Linked invoice
• Application history
• Customer communication history
• PDF version

[SCREENSHOT: Credit note detail page]

Applying Customer Credits

Use credits for future purchases.

Automatic Application

When customer has credit balance:

1. Create new invoice for customer
2. System shows available credit
3. Click Apply Credit
4. Credit reduces invoice amount
5. Customer pays difference (if any)

Example:

Customer Credit Balance: NGN 50,000
New Invoice: NGN 100,000
Apply Credit: -NGN 50,000
Amount to Pay: NGN 50,000

[SCREENSHOT: Applying customer credit to new invoice]

Manual Application

Apply credit to specific invoice:

1. Open the invoice
2. Click Apply Credit
3. Select credit note to apply
4. Amount applies to invoice
5. Balance updates

Refunding Credit Notes

Process cash refunds to customers.

Recording Refund

1. Open the credit note
2. Click Record Refund
3. Enter refund details:
   • Refund date
   • Refund method (bank transfer, cash, etc.)
   • Bank transfer reference
   • Amount refunded
4. Save refund

[SCREENSHOT: Record refund form]

Refund Methods

• Bank Transfer - Most common for B2B
• Cash - For walk-in customers
• Cheque - Traditional method
• Mobile Money - Growing in Nigeria
• Card Reversal - If paid by card

Refund Tracking

View refund status:

• Pending - Refund initiated but not processed
• Processing - Bank is processing refund
• Completed - Customer received refund
• Failed - Refund failed (retry needed)

Credit Note Reports

Track all credit notes and their impact.

Available Reports

Report	Description
Credit Notes Summary	All credit notes in period
Credits by Reason	Why credits were issued
Credits by Customer	Which customers received credits
Revenue Impact	How credits affected revenue
VAT on Credits	VAT reclaimed from credits

[SCREENSHOT: Credit notes reports dashboard]

Best Practices

Credit Note Tips

1. Issue Promptly - Issue credit notes as soon as return/adjustment is approved
2. Clear Reasons - Always document why credit is issued
3. Match VAT - Ensure VAT on credit matches original invoice
4. Communicate - Inform customer immediately
5. Track Returns - Link to return authorization numbers
6. Proper Documentation - Attach photos of damaged goods, RMA forms, etc.
7. Accounting Impact - Understand revenue and tax implications

Common Mistakes to Avoid

• ❌ Issuing credit without proper authorization
• ❌ Forgetting to include VAT
• ❌ Creating credit note before receiving returned goods
• ❌ Not communicating with customer
• ❌ Incorrect credit amounts
• ❌ Not linking to original invoice
• ❌ Missing documentation for audit trail

Troubleshooting

Common Issues

Issue: Cannot Issue Credit Note for Paid Invoice

• Solution: This is allowed. Credit notes can be issued even after payment. Customer will receive refund or credit balance.

Issue: Credit Amount Exceeds Invoice

• Solution: System prevents this (usually). If you need to credit more, create standalone credit note with explanation.

Issue: VAT Calculation Seems Wrong

• Solution: Ensure VAT on credit matches VAT on original invoice. Check if invoice was VAT inclusive or exclusive.

Issue: Customer Says Credit Not Applied

• Solution: Check invoice to confirm credit note is linked. Resend credit note. Verify application method (applied vs customer credit).

What's Next?

Learn about related topics:

• Manage Customers - View customer credit balances
• Accounting Reports - Understand revenue impact of credits
• Edit Invoice - When to edit vs issue credit note

Credit Note vs Invoice Edit

For unpaid invoices with errors, consider editing the invoice instead of issuing credit note. Reserve credit notes for paid invoices or when goods are returned.