Credit Notes

[niconedz]

Hey Mitch

I have a situation where an invoice was issued a couple of months ago.
Now I have a situation where the client has returned the goods.

The original invoice was submitted on my last VAT return so I can't void it or delete it.

The normal way here is to issue a credit note to the customer, hence zero-ing his balance. Then I would submit that credit note on my next VAT return, so I wouldn't be liable for the VAT.

I can't issue a new invoice with negative values as this will show up in my invoices report. Plus it would use up an invoice number (credit notes should have their own sequence numbers).

How should I handle this situation?

Thx
Nico

[K Software]

Pull up the invoice and add a discount for the full amount (or just a negatively priced line item). Once the balance is zero a "Mark Paid" button will show up on the bottom of the window so you can mark the invoice paid without posting a real payment (so reports won't be affected).

Will that work?

[niconedz]

Pull up the invoice and add a discount for the full amount (or just a negatively priced line item). Once the balance is zero a "Mark Paid" button will show up on the bottom of the window so you can mark the invoice paid without posting a real payment (so reports won't be affected).

Will that work?
I understand what you say, but I have to issue an actual credit note (paper one) to the client. This will also be submitted against my next VAT return so I can claim the VAT back.

Discounting the invoice will only clean up the client's account in kBilling. It won't give me the opportunity to claim the VAT back. I asked my accountant if I can issue another invoice with negative values and he believes it'll only open up a can of worms at the VAT office.

It looks like I'm going to have to buy a pre-printed block of credit notes from the book shop and manually issue one to the client. Then I'll have to find a way to pay the invoice off in kBilling (maybe using Other as the payment type).

I know kBilling is not an accounting program per se, but seeing as credit notes are an important part of any invoicing procedure, they really should be included in your software.

Cheers
-Nico

[K Software]

The best way to mark the invoice paid in kBilling is to follow the procedure I described last. It won't create a "credit note" but it will mark the invoice paid without actually recording a real payment. Voiding the invoice might also be an option for you since you don't need it to report on VAT.

As far as credit notes go, I don't have a problem with adding them at all - I just need to know how they work and what they're supposed to look like. Are they raised against an invoice, or a customer? If you have an example, can you fax or email it to me?

[niconedz]

It's basically exactly like an invoice except it says Credit Note on the top instead of invoice.
The VAT is calculated exactly the same as an invoice and the values can't be negative.

A credit note is raised against the customer not an invoice. In your program, you could probably use a credit note to pay against one or more invoices, so that may be tricky if you have a $100 invoice and a $200 credit note (what happens to the balance of the credit note?).

They would need their own sequence numbers.

Thanks!

[K Software]

Does a credit note need to have the line items that appeared on an invoice listed, or just a single line item called with "credit"? If the former is the case then credit notes would have to be raised against invoices (though they could get recorded under the customer record). This puts some customers at a disadvantage if they don't create customer records before creating invoices. In kB it is possible to do a "one off" invoice where you just open the invoice and type in the customer information instead of selecting a customer from the list.

Forgetting the one-off problem for a moment, the easiest thing to do in kB would be to put a "Make credit note" button on the invoice itself. That would make it so you can't make a credit note for more than the invoice balance. Still, if you did make a credit note for more than an invoice it could be added to the customer account as credit, which in turn can be used to pay future invoices.

[niconedz]

Hi Mitch

A credit note works exactly like an invoice.

In kb, you would create a credit note in exactly the same way you would an invoice. You'd select the customer and add items.

The only difference is that it would say "Credit Note" instead of "Invoice" up top, the amounts would be credited instead of debited to the customer, the goods would be returned to the shelf and the VAT would be credited also.

I've attached some simple documents for you to see what I mean.

The attached statement is the sort of thing we would normally send out to our clients. It's more a transaction history than a statement, but you can see the flow of how things work.

[K Software]

Hmm, so essentially duplicating the entire invoice module and renaming it "credit notes" is what is needed? I'll have to think long and hard about that one. That is a rather huge addition. I was hoping to integrate it with the customer database somehow and avoid having to duplicate all the invoice functionality.

[niconedz]

I totally understand your position Mitch as it is a lot to ask.

I'll be very interested to know how others here handle this situation.
Can anyone else reading this thread answer the following question?

What do you do when a customer purchases goods - gets issued an invoice - pays for that invoice - then after a while, returns some of the goods?

How is that customer credited the amount? What happens to the goods? What happens to the tax you paid to the tax man?

Here, the VAT we add to an invoice gets sent to the tax man (minus the VAT on purchases and other expenses). When a credit note is issued, we basically get that tax returned to us.

I would've thought it would be a standard module in any billing software, and frankly, until I needed to issue this credit note, I really believed it was already in kb.

[Boy WOW]

Hi,

I also have the same problem which I have contacted Mitch about recently too. I do various jobs through the day creating 10 to 20 invoices. Sometimes we will need to issue credit notes which state Credit on the top rather than doing this the way Mitch explained. I think this would be really beneficial to a lot of people and although I aint technical but rather than it saying create invoice or F5 have another tab which you can press on the selected customer account which says raise credit. Then have the templates set in the background as we do with invoices. If it was possible maybe there could be a space where you could enter the invoice number and k billing would recognise that the credit is against that particular invoice or likewise if wanting to you a credit that is sat on the account such as a gesture of good will credit you could have a space for the credit note number on the invoice so it cancels the other out. Does that make sense???

[K Software]

I've been thinking about this and since I've heard these called "Credit Invoices" elsewhere, maybe this idea will work.

Another invoice status for "Credit Note". With that will come all of the invoice functionality (less payments), and I can add a custom template for invoices in Credit Note status. Credit Invoices would have several differences like that they couldn't go past due, would never have a balance due, etc.

To make a Credit Invoice you would start with a regular invoice but the credit invoice could be a whole new record (and perhaps use the parent invoice's number with a "-C" appended?).

Two questions with doing that (one of which might be a deal breaker). How are these credit invoices supposed to reflect reports? If you create a credit invoice is the total supposed to come off that day's payments received? More importantly, do you ever raise a credit note that isn't for the full invoice?

[niconedz]

I've been thinking about this and since I've heard these called "Credit Invoices" elsewhere, maybe this idea will work.

Atta Boy... ;)

Another invoice status for "Credit Note". With that will come all of the invoice functionality (less payments), and I can add a custom template for invoices in Credit Note status. Credit Invoices would have several differences like that they couldn't go past due, would never have a balance due, etc.
So far so good.


To make a Credit Invoice you would start with a regular invoice but the credit invoice could be a whole new record (and perhaps use the parent invoice's number with a "-C" appended?).Credit notes are really supposed to have their own numbering sequence. Some are known to have a prefix (CN, C, etc.).


Two questions with doing that (one of which might be a deal breaker). How are these credit invoices supposed to reflect reports?
See the statement image I attached earlier.

If you create a credit invoice is the total supposed to come off that day's payments received?
A credit note probably could be classed as a form of payment, but it really is a reduction in the day's sales.
It shouldn't be added to the day's payments received report. I would probably deduct the credit notes from the day's invoiced balance.

More importantly, do you ever raise a credit note that isn't for the full invoice?
I would probably say that most credit notes are not raised against the full value of an invoice. Credit notes are mostly used for returned goods, price adjustments or even mistakes on previous invoices.
Here, once an invoice has been sent to the customer or even to the tax man, you can't make any changes to it. The only legal way to alter it is to create a credit note.


As far as your program is concerned, I would suggest the following:
Create a credit note and once it's saved, it would act as a form of payment against the customer's balance. If the credit amount is less than the current balance, then the credit note will remit against the unpaid invoices in date order until it 'zeros' out.

The customer's paid status then be left with 3 options.


Fully paid up.
Balance remaining on an invoice.
Customer left with credit.

If it's the 3rd option, then when you create a new invoice, that credit balance will be deducted from the invoice once it's saved.

If a credit note is voided or deleted, it would return the payments in the same way as if a normal payment was voided or deleted.

Hope this helps.

Cheers
-Nico

[niconedz]

Hi Mitch

What's the status of the credit notes?
Are you thinking of implementing something like this in the near future? Or should I just go out and buy a standard block from the stationers and write it out manually?
I've go a tax return approaching and I need that credit in k-billing's reports.

Thx
Nico