A credit note is a document issued by a supplier indicating that they owe money back to the customer, typically following a return, a partial or full refund due to quantity, or a correction to a wrongly issued invoice.
Credit notes reduce the amount owed to a supplier and can be applied against outstanding invoices during payment.
Understanding credit notes
Credit notes are available as a document type within the existing Bill expense type. This means that they follow the same workflow as regular bills, including submission, approval, and review, and use the same expense fields as invoices.
To give you more control, a new document type condition is available in approval settings, which allows you to configure particular approval requirements for credit notes specifically.
Linking credit notes to invoices
When a credit note is linked to an invoice, the link is either hard or soft.
A hard link reduces the payable amount of the linked invoice. A soft link does not change the payable amount, it only shows that the credit note and the invoice are related.
A soft link appears in two cases:
The invoice is already paid when the credit note is created. For example, goods are damaged after the invoice is paid. Payhawk shows the credit note as related to the paid invoice, but the payable amount stays the same, so the link is soft.
The credit note is not yet reviewed. The link stays soft until review, then Payhawk promotes it to a hard link.
Receiving credit note before invoice is paid
The credit note can be submitted, approved, and reviewed before the invoice is paid. When the related invoice is being paid, the system surfaces available credits for that supplier and reduces the payable amount accordingly. The net payment closes both the invoice and the credit note in the ERP system.
For example, a client has a USD 2,000 credit with a supplier. When paying a USD 22,000 invoice, the system applies the credit automatically, which results in a USD 20,000 net payment that closes both the invoice and the credit note in Oracle NetSuite.
Receiving credit note after invoice is paid
The credit note doesn’t need to be tied to the specific invoice that triggered it, but it’s linked to the supplier and to the invoice it’s ultimately used to pay.
The credit note is submitted, approved, and reviewed as usual, and then remains open.
It can be:
Applied to future invoices, which means that the supplier credit remains available until consumed.
Marked as used manually, if the amount has been received back in another way.
Open credit balance
Credit notes can be partially consumed across multiple invoices until the full amount is utilised.
If an invoice is fully covered by a linked credit note, it will automatically be marked as paid.