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Credit Note

Learn how to use credit notes to conveniently track your funds in case of invoice errors or returns.

TABLE OF CONTENTS

What Is a Credit Note?

A credit note (CN) is a document a supplier issues to return funds to a customer. 

Common reasons to create one:

  • The customer returned goods or rejected services.
  • The goods were damaged.
  • There was a mistake in the invoice.
  • The customer overpaid the invoice.

Using credit notes helps you keep your budgets up to date and make payments with supplier’s credits.

How to Use Credit Notes

Ways to create a credit note in Precoro:

Method Best for
With Intelligent AP Automation Creating and matching a CN automatically from a document processed in the AP Inbox.
From an invoice Covering a partial or full return tied to an existing invoice.
As a standalone document Tracking supplier credits independently, with no linked invoice.

💡Please note: Process credit notes with less manual work and fewer errors.
With AP Automation, Precoro matches items to the invoice, applies the invoice tax rate, and checks for mismatches and duplicates before submission. You only need to review the result.

See this article for the full process.

Creating a Credit Note from an Invoice

The Add Credit Note button is available on invoices in:

  • Pending,
  • Pending Receipt (if 3-way matching is configured),
  • Approval Review,
  • Approved,
  • Partly Paid,
  • Paid status.

The button disappears once the CN covers the invoice's full quantity (or amount, for service orders).

Step-by-step process:

  1. Open the Invoice to which you want to add a CN.

  2. Press the Add Credit Note button in the action panel.

  3. Select the items you wish to add to the CN.

  4. Fill out the necessary details for the CN and click Create.

  5. Review the document, edit items if necessary, and click Confirm.

 

 Credit Note  on the related documents depends on its status:

  • Draft: The related Invoice status, budget values, credits, and To Pay remain unchanged.
  • Pending: The invoice status, credits, and To Pay remain unchanged. In the linked budget, Used decreases by the credit note amount and Available increases by the same amount. Total remains unchanged.
  • Paid: The budget changes remain the same as in Pending. Credits increase by the credit note amount, while To Pay decreases accordingly. The invoice status may also change depending on how much of it is covered by the credit note.
  • If Automatically Approve is enabled, the changes for pending and paid credit notes are applied immediately when you confirm the document.

On confirmation, Precoro shows a notification with the affected budget and how the credited amount is applied:

If the invoice is... The credited amount...
not fully paid is added to the invoice payments.
not fully paid, and the credit exceeds the due amount pays off the invoice and the difference goes to the supplier's credit balance.
fully paid is added to the supplier’s credit balance.

invoice& credit-note

If you add a CN while the invoice is still Pending, Pending Receipt, or Approval Review, the invoice keeps its current status until the CN is approved.

💡Please note: Unless you have 3-way match functionality activated, you can complete the purchase orders by adding CNs to them. When you add CNs that fully cover due payment, the PO will get Complete, Received, and Paid statuses.

If 3-way match is enabled and the invoice is in Pending Receipt status, an approved credit note reduces the quantity that still needs to be received.

  • If the credit note is approved before a receipt is created, Precoro reduces the remaining quantity to receive. If nothing is left to receive, the Pending Receipt status is removed and Precoro creates a payment with the Credit Note type.
  • If both the credit note and receipt are Pending and fully cover the same items, the receipt becomes Canceled after approval.

The result is the same regardless of whether the credit note or the receipt is approved first.

Creating a Standalone Credit Note

Create a CN with no linked invoice to record discounts, negotiated price adjustments, or supplier credits independently.

To enable it:

1. Go to Configuration → Basic Settings → Document Setup → Invoices and check
Allow Creating Credit Notes Without Invoices. 

2. To assign budgets to standalone CNs, also check Budgets for Credit Notes in Configuration → Basic Settings → Document Setup → Budgets.

3. Click Save.

standalone-credit-note

Once you’ve activated the feature, you can create a standalone credit note as follows:

  1. Go to the Invoices module.
  2. Click Add Credit Note in the top right.
  3. Fill in Supplier, Contract, and Budget (if enabled).
  4. Add items from the catalog or enter them manually, then confirm. Standalone CNs can't include negative-value items.
  5. The credit note will proceed to the Invoice Approval Workflow (if set up in your company) to reach the Paid status. 

    Please note, standalone CNs undergo the same approval workflow as invoices. You can set it up or adjust the current process in Configuration → Approval Workflow → Invoice Approval Workflow.
  6. Once Paid, its total is added to the supplier's credits and removed from the Spent/Used amount on the assigned contract or budget.

💡Please note: You can also create CNs without invoices automatically from documents processed with Intelligent AP Automation. Find the relevant attachment in the AP Inbox, click Create ("+" icon), and select Add Credit Note.

Paying with Supplier’s Credits

A supplier's credit balance is the confirmed CN amount a supplier owes back to you from a Paid standalone CN, or from an invoice-linked CN once its credited amount exceeds what's due.

When that balance is greater than 0, you can apply it toward any PO or invoice from the same supplier:

In invoice:

  1. Open the invoice you want to pay.

  2. Click More actions (...) menu in the top right.

  3. Choose Mark as Paid.

  4. Set Type to Credit Note—the available Supplier credit balance appears below the field.
  5. Enter the amount in Payment Amount and click Pay.

In a purchase order:

  1. Open the PO and click Add Prepayment in the More actions (...) menu.
  2. Set Payment Type to Credit Note—the available Supplier credit balance appears below the field.
  3. Enter the amount in To Pay and click Pay. The PO moves to Prepaid status, the same as it would with a cash prepayment.


Either way, the payment is listed in the document's Payments table, with Payment Type showing Credit Note. A payment made from a PO carries over to its related invoice.

How to Track Credit Notes

Viewing Related Documents 

Credit notes, invoices, and purchase orders link to each other as clickable document numbers with live statuses:

  • A credit note page links to its related invoice.
  • An invoice page links to its related CN and purchase order.
  • A purchase order page links to all related invoices and CNs.

related-docs-credit-note

When there is a related credit note, item lines in the purchase order, receipt, and invoice have a Quantity in Credit note column. 

credit-note-qty-in-invoice

Creating Credit Note Reports 

Information on credit notes is available in both custom and preset Precoro reports.

You can use the following preset Precoro reports:

  • Credit Note Export by Item

  • Purchase Order Export by Item

  • Invoice Export by Item

When creating a custom report, choose purchase order, invoice, or receipt in the Document type field. Reports based on these documents can display all the necessary credit note information.

custom-reports-credit-notes (1)

Downloading Invoices with the Credit Note Information

When downloading an invoice in PDF or XLSX formats, you can see the following parameters: Credits, Paid, and To Pay.

Precoro only adds the Credits parameter if the document has a related credit note.

 

invoice-pdf

FAQs

How do I cancel a credit note?

You can cancel a credit note via the Cancel button on the action panel if there is a sufficient amount in the supplier's credits. Otherwise, the button will be greyed out; hover over it to see a prompt to cancel credit payments first.

How do I use the credit note number stated by the supplier?

You can add a Supplier Credit Note # while creating a CN and edit it while the document has a Draft status.
Activating the Warn if Supplier Invoice # or Supplier Credit Note # is duplicated option in Configuration—Basic Settings—Documents Setup—Invoices will prevent you from creating CNs with identical numbers.

How are credit notes approved?

Credit notes follow the Invoice Approval Workflow and are approved separately based on their own amount.

  • If Automatically Approve is enabled, the Credit Note is approved when you confirm it.
  • If it is disabled, the Credit Note goes through the Invoice Approval Workflow independently of the related Invoice.
Can I revise an invoice that has an active credit note?

You can't reduce an item's quantity or amount below what's already allocated to an active credit note. If you need to make a change that conflicts with the credit note, reject or cancel it first.

Canceling only the credit note payment doesn't release the related invoice items—the credit note itself must be canceled.