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A credit note can be issued to 'cancel out' the invoice that is to be withdrawn (or partially withdrawn). For example, if a practice invoices a client £1000 and the client refuses to pay the full amount, a credit note can be sent to the client for £50. This will show that the client is then a debtor of £950, and the client has been discounted £50
A credit note is often posted to reduce the recovery of the invoice. For
example, an invoice for £1000 and which has written out £800 will produce
a recovery of £200. Posting a credit note for £50 will reduce the recovery
by £50, so the practice makes a recovery of £150.
Credit notes can be issued against such bad debts (invoices) as a credit
note reduces your VAT liability.
A credit note can recorded in the following ways:
A credit note posted within the Fees Ledger will affect the sales ledger, VAT and offers the most flexible way of posting credit notes.
Click here for the different scenario's of posting a credit note within
the Fees Ledger.
Manual credit notes are a Time Ledger Posting that will not affect the Fees Ledger. This can be used to make adjustments within the Time Ledger.
Within the Fees Ledger a number of documents can be produced and printed to send to a client. To produce a credit note you will first need to post the credit note within the Fees Ledger. The credit note can then be produced using the fees documentation feature.
Click here for further information on credit note documentation.
Credit notes are posted with a VAT element to reduce the VAT liability generated by an invoice. For example, an invoice posted for £1175 gross (£1000 net) of which £175 is the VAT element, increasing the practice VAT liability by £175. The practice decide to discount the invoice by £100, and so are liable for 14.89 less (17.5% of £100)
The effect of credit notes on the practice VAT liability will differ according
to how your practice accounts for VAT. If a practice posts normal invoices,
the VAT element of postings go into the VAT output nominal code immediately.
Click here for further details of the nominal movements.
Practices that are cash accounting (practices that are either a low turnover business or post invoices as proforma), the VAT element of a credit note first go into the VAT reserve nominal code. Once matched to an invoice these are transferred to the VAT output nominal code. Click here for nominal movements for a low turnover business or here for invoices posted as proforma.
The Fees Ledger keeps a nominal breakdown for each posting. This can be used to track movements and totals of postings within the ledger.
Click on the option below to view the nominal movements by practice type:
Nominal postings for normal invoices
Nominal postings for low turnover businesses that post invoices.
Nominal postings for businesses that post proforma's
Recoveries on credit notes can be displayed using the Billing Analysis report. There are two ways for showing recoveries on credit notes, depending on whether recovery figures are to be displayed on an invoice by invoice basis.
Firstly, you can show the effects of credit notes against bills. Using this method the recovery adjustment of the credit note has made is displayed with an invoice. This means that when reporting recoveries will be shown against the invoice date, and can provide recoveries on an invoice by invoice basis.
To use this option, once a credit note has been posted and updated into the time ledger, manually match the credit note to the required invoice.
Alternatively, credit notes can be treated as unmatched. Using this option the recovery adjustment the credit note has made is displayed against the credit note, and not associated with an invoice. This option allows for matching the credit note at a date required, without affecting the billing analysis report.
For both options, if both the invoice and the credit note fall into the same period the two approaches give the same recovery for the client. However, If the invoice and credit note fall in to different reports when show affect on invoices is selected then the affect of the credit note will be shown on the invoice; or when the invoice and credit note fall into different reports when treat as though unmatched is selected then the effect of the credit note will be shown on the credit note.