A credit note reduces what a customer owes against an invoice already issued. It is the correct way to fix an over-charge, apply an agreed discount after the fact, or reverse a line that should not have been billed.
The rule underneath it: an issued invoice is a document you have given someone. Editing it retrospectively makes your records and their records disagree, and where the invoice has been submitted for VAT it makes yours wrong. A credit note leaves both documents intact and records the correction as its own event.
Raising one
Invoices → Credit notes → New. A credit note is created against an invoice and is built from that invoice's lines.
Each credit note line references one invoice line and carries:
| Field | Notes |
|---|---|
| Invoice line | Which line is being credited. |
| Billing code | Carried from the line. |
| Discount | The reduction applied. |
| Net | Net value credited. |
| VAT | Tax credited. |
| Currency | The line currency. |
The credit note itself carries an overall discount and the collection of its lines.
Credit the line, not the total
Because credit notes are line-based, credit the lines that were actually wrong. A single lump credit against an invoice loses the information about what was wrong, which matters for two reasons:
- VAT is credited per line at the line's rate. A lump credit cannot be apportioned correctly.
- Analysis attributes the credit to a billing code. Credits that cannot be attributed hide where margin is genuinely being lost.
If a customer disputes a demurrage charge, credit the demurrage line. Do not credit the freight line for the same value because it is easier.
Partial credits
A credit note does not have to cancel a line. Crediting part of a line's value is normal — an agreed reduction, a goodwill gesture, a rate corrected downwards. Enter the amount being credited, not the line's full value.
What is enforced
| Rule | Refusal |
|---|---|
| Something must actually be credited | At least one invoice line must have a discount |
| A line cannot be credited twice on one note | Invoice line … appears more than once |
| The line must belong to the invoice | Invoice line … not found on invoice … |
| A line cannot be over-credited | Discount … exceeds remaining value … for line … |
| The note cannot exceed the invoice | Total discount … is greater than invoice amount … |
| A note must have lines before submission | Credit note has no lines to submit |
"Exceeds remaining value" is the important one. The check is against what is left on the line, not its original value — so a line already partly credited by an earlier note can only take the balance. If a figure looks wrong, look for a previous credit note against the same invoice before assuming the amount is mistaken.
Once submitted, it is fixed
Two states close a credit note off:
- "Credit note already published to Dynamics" — it has reached the accounting system.
- "Credit note already submitted to VAT portal and cannot be unsubmitted" — it has been reported to the tax authority, and there is no route back.
The second is absolute by design. A credit note reported for VAT is a document the authority holds; correcting it means another document, not an undo.
Submitting
Like invoices, credit notes are submitted onward:
- To the tax authority's VAT portal, recording a VAT reference number and submission timestamp.
- To the external accounting system, recording its own identifier and timestamp.
A credit note showing these references has been reported externally and should be treated as final. If it too was wrong, the answer is another document, not an edit.
Before you raise one
Three checks that prevent most rework:
- Is a credit note the right instrument? If the invoice was sent to the wrong company entirely, the fix may be to credit it in full and re-invoice the correct party, rather than adjusting a line.
- Has the invoice been submitted for VAT? If not, and nothing has been sent to the customer, correcting the invoice may be simpler. Once it is submitted, a credit note is the only correct route.
- Is the reduction agreed? A credit note is a commercial concession. Raising one before the customer has agreed the amount tends to set the negotiation's floor.
Deleting a credit note
Deletion exists but should be reserved for credit notes raised in error and not yet submitted anywhere. Once a credit note carries a VAT or accounting reference it forms part of the record.
Last updated 15 September 2026