if i do an estimate, and then turn it into a quote.
if i then accept multiple payment for this which are paid via the bank.
if i then agree a final discount or adjusted price on the final amount, how would i do this and keep everything matching up?
example
i invoice a customer for £1000
I receive £100 bank deposit.
I receive £500 bank mid payment.
I receive £350 bank payment and agree that i have discounted the final amount by £50.
how would i actually do this?
if i just kept the invoice at £1000, it would show £50 outstanding.
Credit note in the sense of accounting is more of an adjustment or refund - it doesn’t give them credit as such (although this is one use of it).
For example, if they’ve paid the invoice in full then you will have the option to either refund the balance to the client (as if you’ve physically paid them back), or hold the funds on account (which gives them credit).
If there’s an outstanding balance on the invoice, the credit note can be used to reduce the amount owed - no money would change hands.
It can be a difficult choice at times. Typically I would apply a discount where it had been explicitly agreed up front and matched the terms of the invoice.
So if, as a magazine editor, I agreed an advertising slot for a year, prepaid then I would include the discount in the invoice.
If I invoiced at 30 days but said that they could have a discount if, and only if, the money was paid in 7 days then I would use a credit note.
Remember that the credit note can be used purely for internal accounting, you don’t have to send it to the customer.
How do credit notes and invoiced amounts show up in sales etc then?
Do you sort of hold a separate ‘bank account’ for credit notes?
what i mean is,
if i invoiced £1000 then applied a £50 credit note,
i think my sales would show as £1000 even though it was £950 i got.
what happens to these credit notes and how are they actually accounted for?
are they effectively money owed to you that you have written off or authorised that you are not collecting?
The credit is simply a deduction from the nominal account that you specify when creating it. IIRC It will default to the nominal in the first line of the invoice. The sales figure and the amount owned by your customer are both reduced.
They are not money “written off” in the technical sense, as far as HMRC are concerned this term explicitly covers bad debts and is handled differently in Quickfile.
A credit note is essentially an invoice with a negative value - if you issue an invoice for £1000 and a credit for £50, then your total sales add up to £950.
You can create credit notes to represent cases where you’ve actually sent a refund, or cases where you’re simply reducing the amount the customer needs to pay you. For example, I run a shop, I order £500 worth of goods from a wholesaler and they send me an invoice. Then when the goods arrive it turns out that £50 worth of the items are damaged or missing, I contact the supplier and they send me a credit note for £50, then I pay them the £450 balance.
Or if I’d already paid them the full £500 before the delivery arrived then I might use that £50 credit note to reduce the amount I pay them next time I order from them.
A good rule to stick by is not to modify an invoice that you have already sent to a customer - if you need to reduce what they owe then issue a credit note rather than modifying the original invoice. This is particularly important if you’re VAT registered as it removes any ambiguity between you and the customer as to exactly how much VAT they’re entitled to reclaim.
