What is a credit note?
When would a credit adjustment be used in Abtrac
A credit or adjustment note is an invoice document generated in Abtrac to inform the client that a specified amount has been credited from a previous invoice. This may be necessary if you have over-invoiced a client or if there is a dispute regarding charges.
While this adjustment can involve a physical refund, it is more commonly used to cancel fees from a prior invoice.
Credit note adjustments can either reverse the entire amount of a previous invoice or apply to specific charges within it.
When a credit note would not be used in Abtrac
Agreed Discounts
Credit notes are not discounts. Any discount of fees would typically be included as part of a legitimate invoice. These are usually displayed as a reduced hourly rate, or as a percentage of a line item, or a specific invoice line amount.
Writing off Bad Debts
Abtrac credits notes are also not write offs. They are not used to cancel a bad debt.
If you’ve charged a client and they refuse to pay, the original invoice remains a valid document. It should remain on your invoice reports, and actual vs budget reporting in Abtrac.
The debt (and write-off of revenue) should be handled in your Accounting System. You shouldn’t reverse it in Abtrac. The time spent and the fees charged are still valid.
Typically if you create a credit note to write off a bad debt in your Accounting System, it will also be coded to a “bad debt” accounts code, and not a revenue code.
The method you use to write off a bad debt will also depend on your GST registration status and how you want the transactions to be recorded in your accounting reports.
If you have the Debtor Management module in Abtrac you can manually record the bad debt as ‘paid’ using the Journal adjustment, or Uneconomic Amount Written off options.
Abtrac Debtors Module: Recording a bad debt
Xero: Recording a bad debt
https://central.xero.com/s/article/Record-a-bad-debt-in-Xero
MYOB: Recording a bad debt
https://www.myob.com/nz/support/myob-business/sales/writing-off-bad-debts
How to create a credit note
Before you start to create an adjustment invoice in Abtrac you’ll need to make a note of the invoice number you need to create a credit note for, and the amount you are crediting.
Then from Invoices > select Generate Credit Adjustments.
Select the invoice to adjust
Select the invoice number that needs crediting from the drop down.
Adjustment Taxable
Adjustment Taxable will be preselected. This is determined by whether the original invoice contained tax. Typically if the original invoice contained tax, the adjustment should also.
Adjustment amount and Includes GST
Enter the adjustment amount, and indicate whether the amount includes tax (GST).
Usually :
- if the Invoice to adjust is taxable, then
- you would enter the amount to credit as the tax exclusive value, and
- leave includes tax as checked.
Create a credit note for the total invoice amount
If you are crediting an entire invoice, the amount is shown when you select the invoice number.
Once you’ve entered the adjustment amount and adjustment invoice date, select Generate Adjustment.
Createa a credit note for a partial invoice amount
In this example we are crediting only the highlighted invoice line amount.
The line amount shown on the Invoice management screen is the amount we enter for the credit note adjustment. The line is taxable, so when we enter the amount exclusive of tax we also leave includes GST as checked.
Once you’ve entered the adjustment amount and adjustment invoice date, select Generate Adjustment.
Viewing and editing a credit note
When the credit note is created you are directed to the Invoice Management screen to review the adjustment invoice details.
Credit adjustment heading line
The invoice Heading line is automatically generated by Abtrac to include the works “Credit Adjustment Invoice for” this can be edited before sending the credit to the client.
The Invoice billing comment (not displayed on the pdf) also contains the same information.
Credit Note + Invoice link
A credit invoice will also include a link within the header for Abtrac users to easily view the original invoice. Clicking on the invoice number will load the invoice that is being credited. If you have the add-on Debtor Management module for Abtrac this link also creates journal adjustment payments – read more on this below.
Credit Invoice
Original Invoice
Set credit note terms
Your credit note might need different payment terms than a regular invoice. You can set unique terms for the individual credit note by typing directly into the terms field on the invoice.
Or you can double click in the Invoice terms box to select pre-set invoice terms for credit notes. Read more on this below.
Read more on Invoice terms here
Credit invoice lines, narratives and amounts
The credit adjustment invoice is created with a single invoice line and amount.
The line narration is automatically generated by Abtrac to include the works “Credit Adjustment as at [Invoice Date] on Invoice [Invoice number].
This line narration can be edited before sending the credit to the client.
Assigned Time on Credit Notes
When generating a credit adjustment in Abtrac you can either
- leave the time assigned to the original invoice,
- partially assign time to the credit adjustment,
- unassign all the time from the original and then reassign the time to the credit invoice, or
- unassign the time and leave it as WIP
Which method you choose depends on the reason for the credit adjustment, and how you report on invoicing, fees earned, write-offs and other metrics related to time vs billed amounts.
Credit note preview
Credit notes and invoice payments
Credit notes and payments
You can share credit notes to Xero and MYOB in the usual way with the Abtrac accounts add on.
However if your credit note is allocated or applied to another invoice from within your accounting software this “payment” might not sync back to Abtrac automatically.
You’ll need to check both the original invoice and the credit note have payments applied in Abtrac.
Credit notes and payments – Invoice Payments screen.
From Invoices > Invoice Payments you can manually record the credit adjustment (and original invoice) as paid by selecting the ‘Paid’ option and updating the Payment Date as required.
Credit notes and payments with the Debtor Management Module
You do not need to record payments manually if you are using the Debtor Management module.
When you create a credit note adjustment in Abtrac both the credit note and the original invoice are automatically recorded as ‘paid’ with two journal adjustment lines.
Credit note journal adjustment payment
The credit note is automatically recorded as paid.
Original invoice journal adjustment payment
The invoice you are crediting is also recorded as paid. In this case it is a partial credit, so the invoice shows a partial payment.
The Abtrac link to your accounts should then apply the remainder payment automatically from your payments sync.
If your accounts link to Abtrac does not allow partial payments (or if you don’t have the Abtrac accounts link add-on module) you made need to update the remainder payment manually, following the steps here:
Recording Manual Invoice Payments (and adjustments)
Deleting credit notes
Deleting credit notes without payments applied
You can delete a credit note in the usual manner by first uncommitting the invoice, and then choosing the delete invoice option. You’ll be prompted to confirm your choice and any timesheet lines associated with the invoice will be unassigned and returned to work in progress.
Deleting credit notes with payments applied
A credit invoice will also include a link within the header for Abtrac users to easily view the original invoice. Clicking on the invoice number will load the invoice that is being credited.
If you have the add-on Debtor Management module for Abtrac this link also creates journal adjustment payments, in both the original invoice and the credit note.
When you uncommit the invoice, and choose the delete invoice option you’ll be prompted to confirm your choice and notified that these journal adjustment lines will also be deleted.
Any timesheet lines associated with the credit invoice will be unassigned and returned to work in progress.
Administration settings for credit notes
Setting the name for your credit adjustment invoices
You can specify the name that is shown on your invoice document when it is a negative total due. These can be called credit note, adjustment note, adjustment invoice, credit invoice etc.
From Administration >> Settings >> Invoice and Other Office Settings in the Invoice Names section specify the name to display.
Read more on Invoice and other office settings here.
Set credit note terms
Your credit note might need different payment terms than a regular invoice. You can set unique terms for the individual credit note, or save invoice terms for credit notes from Administration >> Settings >> Invoice and Other Office Settings
Read more on Invoice terms here
Abtrac KB# 2057