5 Mistakes To Avoid While Generating Credit Notes
If you are familiar with the invoicing process, you then understand the importance of a credit note in business. Whenever a supplier sends a wrong invoice to the intended customer due to some specific reason, a credit note is issued to rectify the mistakes or make any sort of adjustments during payment. It is an additional legal, supplementary to the original invoice.
What is a Credit Note?
Credit notes are legal documents or vouchers, similar to invoices that allow you to adjust the invoice differences. Generally, it consists of reasons related to the canceling or adjustment of the original invoices. The actual difference in an invoice varies, depending on the case or situation.
Since the supplier cannot cancel an invoice already sent to the buyer or customer, a credit note is issued as a legal document to make adjustments or nullify the original invoice.
For example, if the supplier AB finds out that the product dispatched is faulty to the buyer CD. Therefore, AB issues credit notes to CD, thereby adjusting the amount of debt.
Situations When Credit Notes is being Raised
A supplier can send a credit note to an intended buyer or customer due to various reasons or specific situations. Some of the following cases where it can be issued:
- The tax charged in the invoice exceeds the actual tax payable.
- The taxable value displayed in the original invoice is more than the original taxable amount.
- Customer or recipients returns the goods to the supplier (Sales Return).
- Goods are found to defective, deficient, or not as per the customer’s satisfaction
Mistakes To Avoid While Generating Credit Notes
As a supplier, if you are going to generate or issue a credit note, you will need to find out the authentic reason for the purpose. Here are some mistakes that you need to avoid while generating a credit note:
Wrong Invoice Number and Incorrect Details
A credit note is supplementary to sales invoices. The supplier should be extremely cautious while generating a credit note. All the requisite information should be in adherence to the original sales invoice. Also, it is important to keep the invoice number sequence intact, i.e if the original incorrect invoice was step number one, then the credit note must be a step two.
Having Factual Error
A credit note is an essential document and all the information should be relevant and factual. It is an interactive document between buyer and seller and can be produced as evidence whenever needed. If there is an error in the document, the supplier has to bear the adjustment loss during final GST returns.
Raising It Without Mentioning Any Reason
A supplier issues a credit note for several reasons such as for an incorrect invoice, good returns were faulty, the client accidentally paid more, etc. Therefore, while generating the note, you should specifically mention the reason. It should be authentic and precise.
Deleted the Original Invoice While Generating
As a supplier, you should not delete the original invoice. A credit note is supplementary to the original invoice, not an alternative. An invoice is a legal document that you have sent to the buyer, even if it has an error, you should not delete it.
Generating After Time Limit
According to the GST Act 2017, a supplier can issue a credit note against an invoice on or before 30 September of the coming financial year or the intended date of filing the annual return, whichever is earlier. Therefore, you must remember the stipulated period for generating a credit note, otherwise, it has no relevance at all.
A credit note helps to maintain clarity and the credible transaction of goods in a business. This enhances the business relationship between the supplier and the recipient. In a nation full of complexities, the government has formulated new rules and regulations by introducing GST to facilitate smooth tax procedures. Therefore, a stable and trustable business ecosystem is essential to become a prosperous nation.