How to issue a credit note in New Zealand

To issue a credit note in New Zealand, you need to create a document that adjusts or cancels part or all of a previously issued invoice. The credit note must reference the original invoice, show the amount being credited, the date of issue, and the customer's details. This corrects billing errors, returns, or cancellations and keeps your accounts and GST records accurate. This article covers why you might need to issue a credit note, the exact steps to do so, a practical example with figures, common mistakes to avoid, and answers to common questions.

Why this comes up / what goes wrong

Small-business owners often need to issue credit notes when something has gone wrong with a sale or invoice. For example, a customer might return goods, you may have invoiced the wrong amount, or the customer might have cancelled an order after you invoiced it. Without a credit note, your accounts will show incorrect sales revenue and GST, your customer may be confused or overcharged, and your business records won’t match.

For instance, a Hamilton dairy equipment supplier might accidentally invoice NZ$4,000 for equipment returned by a customer. The customer requests a refund or adjustment. To fix this, the supplier issues a credit note referencing the original invoice to correct the amount owed.

Issuing credit notes is also important for maintaining good customer relationships and clear communication. It shows professionalism and helps avoid disputes over payments.

Step-by-step

1. Identify the reason for the credit note

• Confirm if it’s due to returned goods, overcharge, cancellation, or a billing error.
• This ensures the credit note is justified and accurate.

1. Locate the original invoice

• Have the invoice number, date, and customer details handy to reference.
• This links the credit note to the original transaction.

1. Create the credit note document

• Include a unique credit note number.
• Reference the original invoice number and date.
• State the credit note issue date.
• List customer name and contact details.
• Describe the reason for the credit.
• Show the amount being credited, including GST if applicable.

1. Calculate the credit amount

• Ensure the amount matches the returned goods or overcharged sum.
• Include GST if the original invoice included GST.
• Double-check your calculations to avoid errors.

1. Send the credit note to the customer

• Deliver by email or post promptly to keep communication clear.
• Confirm receipt if possible.

1. Record the credit note in your accounts

• Adjust your sales records and GST returns accordingly.
• This keeps your financial records accurate and up to date.

1. Keep a copy for your records

• Keep the credit note with your accounting files for audit and reference.
• This is important for compliance and future queries.

For managing sales and customer communication efficiently, consider tools like a WhatsApp and SMS CRM or a built-in CRM dialer to track interactions and follow-ups. These can help your team keep on top of credit notes and customer communications.

Example (fictional figures)

A Hamilton dairy equipment supplier invoiced a customer NZ$4,600 on 10/04/2024 for a milking machine including GST (assumed illustrative rate 15%). The customer returned the machine due to a fault. The supplier needs to issue a credit note on 15/04/2024.

• Original invoice amount (including GST) = NZ$4,600
• GST portion = NZ$4,600 × 15% / 115% = NZ$600
• Net amount = NZ$4,600 - NZ$600 = NZ$4,000

The credit note will be for the full amount:

• Credit note net amount = NZ$4,000
• Credit note GST = NZ$600
• Total credit note amount = NZ$4,000 + NZ$600 = NZ$4,600

The credit note references invoice number and date, states the reason as "Returned faulty milking machine", and is issued on 15/04/2024.

Common mistakes

1. Not referencing the original invoice

• Prevent by always including the original invoice number and date on the credit note.
• This avoids confusion and ties the credit note to the correct sale.

1. Incorrect amounts or GST calculations

• Double-check figures and GST portion to avoid errors.
• Use a calculator or accounting software to verify.

1. Delaying sending the credit note to the customer

• Send promptly to maintain trust and clear communication.
• Delays can cause payment disputes and customer dissatisfaction.

1. Failing to update your accounting records

• Record the credit note immediately to keep accounts accurate.
• This prevents errors in financial reporting and GST returns.

1. Using duplicate credit note numbers

• Use unique numbering to avoid confusion.
• Keep a log or use software to track numbers.

1. Not keeping a copy for your records

• Always keep a copy for audit and future reference.
• This protects your business in case of queries or audits.

For more efficient record keeping and sales management, explore HelloGrowthCRM for New Zealand.

Frequently asked questions

Can I issue a credit note instead of a refund? Yes, a credit note can be issued to reduce the amount the customer owes or as a credit for future purchases instead of a cash refund. Ensure both parties agree on this arrangement.

Do credit notes affect GST returns? Yes, credit notes adjust your sales figures and GST liability. You must reflect the credit note amounts in your GST returns to keep your tax records accurate. NEEDS EXPERT REVIEW

Is a credit note legally required for returns? While not always legally required, issuing a credit note is best practice to document adjustments officially and avoid disputes.

Can I issue a credit note for part of an invoice? Yes, credit notes can be for full or partial amounts depending on the adjustment needed.

How do I track credit notes with my sales? Use a consistent numbering system and record credit notes alongside invoices in your accounting system or sales CRM.

Can I issue a credit note if the original invoice was not paid? Yes, you can issue a credit note regardless of payment status to correct the invoice amount. This keeps your records accurate and transparent.

Key takeaways

• Always reference the original invoice on your credit note.
• Include accurate amounts and GST calculations.
• Issue and send credit notes promptly.
• Record credit notes clearly in your accounting system.
• Use unique credit note numbers to avoid confusion.
• Keep copies for your records and audit trail.

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