Credit notes: when, why and how
For an Account Manager who cares about meeting their monthly or yearly budget, issuing a credit note (or credit memo) on a project can be a deflating experience.
If you do have to generate or authorise a credit note, you will need to first do some investigation to find out why you need to credit your job. If it proves that you do need to issue a credit note, then do it quickly and without fuss. Your client will appreciate the swift action (especially if it also means refunding money already paid to your agency).
What are credit notes?
Credit notes are issued by a supplier (your agency) when the price for the supply of the goods or services is reduced after a tax invoice has been issued, or to reimburse a buyer (your client) completely.
Why would you need to issue one?
A credit note could be issued for a number of different reasons:
- The project was over-charged.
- The invoice total was incorrect.
- Goods were returned as faulty.
- Your client accidentally over-paid.
- Your client runs two businesses (with two client codes) and you accidentally invoiced the wrong business.
- You invoiced for a total project cost, but all the project components were not completed (or not completed on time, or to satisfaction).
- You invoiced a component of a project too early (e.g. during a website development).
- You pre-invoiced (and were pre-paid for) a project (at your client's request), then the project specifications changed.
- Your client was dissatisfied with results.
What should the credit note show?
Please note: this list pertains to New Zealand businesses. You will need to ensure that you comply with the regulations of your own country.
- The words "credit note" in a prominent place.
- The name (or trading name) of your company.
- GST number of your company.
- Name and address of the recipient (e.g. your client).
- Date it was issued.
- A brief explanation of why it was issued.
- The amount including GST shown on the tax invoice, the correct amount payable including GST and the difference between the two amounts of GST charged, or the difference between the incorrect and correct amount, and a statement that the difference includes GST.
As with tax invoices, only one credit note can be issued.
How to avoid the need to issue credit notes:
- Ask your client to provide you with a purchase order. This confirms their agreement with the price that they will be charged.
- Before invoicing, send your client a spreadsheet showing the total project cost and a breakdown of the cost of the components. Ask your client to approve this before you generate the invoice.
- Ask your client for written confirmation (e.g. via email) of your quote.
- Do only first-rate work, aiming to always match or exceed your client's expectations and avoid any disappointments.
- Ensure your numbers are right. It's very easy to make a mistake with calculations or paperwork, and end up invoicing an incorrect amount.
- Track your projects closely to ensure the work completed is what your client has requested, and that you are only invoicing work that has been completed.
- Try to stop project "creep" (when the specifications of a project start to become wider than what was originally quoted). If this happens, ensure your client understands the implications and what the additional cost will be.
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