What is a credit note and how is it different from a credit memo?

Credit note is the internationally preferred term (common in UK, Australia, and most non-US markets) for what US accountants typically call a credit memo. They are functionally identical: a document that reduces a customer's outstanding balance, either against a specific past invoice or as a general credit on their account.

Common reasons to issue a credit note: pricing error on the original invoice, agreed discount applied after the fact, return of goods, service not fully delivered, or partial resolution of a disputed invoice. A credit note does not mean the original invoice was wrong — it can be a business decision to adjust the balance as part of a customer relationship or dispute resolution.

In accounting terms, issuing a credit note creates a debit to revenue (reducing it) and a credit to accounts receivable (reducing the customer's balance). This is the opposite journal entry from the original invoice. For collections purposes, once a credit note is applied, only the net balance is collectable — following up for the full original invoice amount after a credit has been issued is a billing error.