The Difference Between a Refund Receipt and a Credit Note

The system provides two ways to record what is returned to the client after a sale: a refund receipt and a credit note. Both return the items to stock and record a sales returns entry, but they differ in how they are linked to the original invoice, how the amount is returned to the client, and their effect on the client’s balance. This guide explains the difference between them, when to use each, and the steps to create each one.

The Difference at a Glance

Comparison	Refund Receipt	Credit Note
Link to the sales invoice	Created from a sales invoice only, and cannot be created independently.	Can be created from a sales invoice, or independently from the client page or from the credit notes list.
Items and quantities	Only the original invoice’s items, up to the quantity sold minus what was previously returned.	If linked to an invoice: the same restrictions. If independent: no restriction on items or quantities, and it can be text lines with no products.
Returning the amount to the client	The amount can be refunded in cash from a treasury directly from the same screen.	Not refunded in cash; its value becomes a credit balance for the client.
Effect on the original invoice	Reduces the amount due on the original invoice by the portion not refunded in cash, and its status becomes “Returned” or “Partially Returned.”	Does not directly reduce the amount due on the original invoice; it is added to the client’s balance and used to pay their invoices.
Stock	Returns the returned quantities to the warehouse.	Returns the quantities to the warehouse if it contains products.
Accounting entry	Debit Sales Returns, credit the client’s account.	Debit Sales Returns, credit the client’s account.
E-invoicing	Sent as a credit note (ZATCA, ETA, Jordan).	Sent as a credit note (ZATCA, ETA, Jordan).

When to Use Each

• Use a refund receipt when the client returns items they bought in a specific invoice and you want to refund their price in cash, or deduct it from what remains due in the same invoice.
• Use a credit note when you want to give the client a balance to use in later invoices, or to record a settlement, a later discount, or compensation without being tied to a specific invoice or items.

Before You Start

• You need the permission to add invoices for all clients, or to add invoices for your own clients if the invoice belongs to one of your clients.
• To refund the amount in cash on a refund receipt, you need the permission to add payments for all invoices, or to add payments for your own invoices.
• Neither can be created from an invoice in Draft status; issue the invoice first.

Steps to Create a Refund Receipt

1. From Sales, open Sales Invoices, then open the invoice whose items the client returned.
2. From the toolbar, click Return Notice, then choose Create Refund Receipt.
3. The original invoice’s items appear; adjust the returned quantities and delete the items that weren’t returned.
4. If you refunded the amount to the client, enable the option “Invoice Paid, and refund the returned amount to the client,” and choose a treasury and a payment method.
5. Click Save. The refund receipt appears in the refund receipt list.

If you didn’t enable the refund when creating it, you can add a payment to the refund receipt later, provided the amount doesn’t exceed what was paid on the original sales invoice.

Steps to Create a Credit Note

1. Choose the starting point: from the sales invoice, click Return Notice then Create Credit Note; or from the client page; or from the credit notes list, click Create Credit Note.
2. Add the lines: items that return to stock, or text lines representing the settlement amount.
3. Click Save.

How the System Works

• A refund receipt is calculated from the amount due on the original invoice: amount due = total − paid − the portion of returns not refunded in cash. If the returns cover the invoice total, its status becomes Returned.
• The credit note’s value is added to the client’s credit balance. If the setting to pay invoices automatically when the client has a balance is enabled, the balance is used automatically to pay the client’s unpaid invoices from oldest to newest.
• The original invoice’s status (“Partially Returned” or “Returned”) takes into account the refund receipt and credit notes linked to it.
• If stock requisitions are enabled, an addition requisition linked to the document is created, and the quantity doesn’t enter stock until it is accepted.
• The returned quantities go back to stock at cost according to the “Returns Cost Calculation Method” setting in the inventory settings, and the cost of sales entry is reversed.

Example: a sales invoice with a total of 1,000, of which the client paid 1,000, then returned items worth 300.

• With a refund receipt and a refund: 300 is paid out of the treasury to the client.
• With a credit note: the client gets a credit balance of 300 to use on their next invoice.

Validation Rules

• Neither can be created from a draft invoice.
• The client must be the same client as the original invoice.
• An item that isn’t in the original invoice cannot be returned, nor a quantity greater than the remainder; a message appears saying the line has exceeded the quantity allowed to be returned.
• A document with a negative total cannot be saved.
• The amount refunded in cash on a refund receipt cannot exceed the amount paid on the original sales invoice.
• A refund receipt is not available for advance payment invoices.

Frequently Asked Questions

• Why doesn’t the refund receipt option appear in its list? Because it is created from within the sales invoice only, not from the refund receipt list.
• Can a credit note be issued for an amount only, without items? Yes, if you create it independently and add text lines.
• How do I refund a credit note’s value in cash to the client? A credit note isn’t refunded in cash from its screen; if you want to refund the amount in cash, use a refund receipt from the original invoice.
• Why did a message appear saying the quantity exceeded what’s allowed to be returned? Because the total of what was previously returned in refund receipts and credit notes, plus the current quantity, exceeds the quantity sold.
• Why didn’t the quantity go back to stock? If stock requisitions are enabled, the quantity enters after the requisition linked to the document is accepted.