What is difference between debit note and credit note?

Team Nomi

Jun 05, 2026
6 minutes read

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Received the wrong invoice amount or need to adjust a business transaction? This is where debit notes and credit notes become important. Many business owners and accountants often ask, what is difference between debit note and credit note, as both documents are used to make changes to invoices, handle returns, and correct billing mistakes.

Although they may sound similar, they serve different purposes. A debit note is issued when the amount payable needs to increase, while a credit note is issued when the amount payable needs to be reduced. These documents help businesses maintain accurate financial records and avoid accounting errors.

What is a debit note?

A debit note is a document issued to inform the supplier that a buyer has been charged less than the correct amount or that an additional charge is required.

It increases the amount payable between the buyer and seller.

When is a debit note used?

• • Undercharged invoices
  • Additional goods or services received
  • Price adjustments after invoice issuance
  • Corrections in billing errors

Example of a Debit Note:

If a supplier invoices £1,000 instead of £1,200, the buyer issues a debit note for the £200 difference.

What is a credit note?

A credit note is issued by the seller when there is a need to reduce the invoice amount already billed to a customer.

It decreases the amount payable or confirms a refund or adjustment.

When is a credit note used?

• • Returned goods
  • Overcharged invoices
  • Discounts issued after billing
  • Cancellation of services or partial refunds

Example of a Credit Note:

If a customer returns goods worth £300, the seller issues a credit note reducing the payable amount by £300.

Debit Note vs Credit Note

Businesses often engage in complex financial transactions, and understanding the differences between debit notes and credit notes is crucial for maintaining accurate financial records and ensuring smooth business operations. 

Let’s explore the key differences between these two important documents:

1. Meaning

Debit Note

• • Indicates an increase in the amount owed
  • Issued when the original invoice value is lower than the actual value
  • Adjusts the transaction upwards

Credit Note

• • Indicates a reduction in the amount owed
  • Issued when the original invoice value is higher than the actual value
  • Adjusts transaction downwards

2. Issued By

Debit Note

• • Issued by: Buyer (mostly)
  • Purpose: Notify the supplier about underbilling or adjustments needed

Credit Note

• • Issued by: Seller
  • Purpose: Confirm correction, refund, or invoice reduction

3. Purpose

A debit note is used when:

• • Missing or additional items are found
  • The invoice value is undercharged
  • Extra charges need to be added

A credit note is used when:

• • Goods are returned
  • The invoice is overcharged
  • Discounts or corrections are applied after billing

4. Financial Effect

Debit Note

• • Increases the total payable amount
  • The buyer needs to pay more
  • Adjusts transaction value upwards

Credit Note

• • Decreases the total payable amount
  • The buyer pays less or gets a refund
  • Adjusts transaction value downwards

5. Accounting Impact

Debit Note

• • Increases purchase value in the buyer’s books
  • Increases receivables for the seller
  • Reflects additional charge entry

Credit Note

• • Reduces sales value in the seller’s books
  • Reduces the payable for the buyer
  • Reflects deduction or refund entry

6. Common Reasons

Debit note reasons:

• • Undercharged invoices
  • Additional goods/services supplied
  • Pricing or calculation errors

Credit note reasons:

• • Returned goods
  • Overbilling errors
  • Post-sale discounts or cancellations

7. VAT Impact

Debit Note

• • VAT liability increases
  • Higher taxable value recorded
  • More VAT payable to the authorities

Credit Note

• • VAT liability decreases
  • Lower taxable value recorded
  • VAT adjustment or reduction applied

8. Direction of Adjustment

Debit Note

• • Moves value upwards
  • Increases the invoice or payable amount
  • The buyer owes more money

Credit Note

• • Moves value downwards
  • Reduces the invoice or payable amount
  • The buyer owes less or gets a refund

Conclusion

Debit notes and credit notes help businesses keep financial records accurate. A debit note increases the amount payable and is used for extra charges or invoice adjustments, while a credit note reduces the amount payable for returns, overbilling, or discounts.

Understanding the difference helps businesses manage invoices better, avoid disputes, and maintain accurate bookkeeping. In simple terms, debit notes increase amounts, while credit notes reduce them.

Manage Debit Notes & Credit Notes Effortlessly with Nomi Bookkeeping Software

Nomi’s bookkeeping software makes it easy to manage debit notes and credit notes with accuracy and efficiency. With automated bank reconciliation, your transactions are seamlessly matched with accounting records, ensuring every adjustment is correctly reflected. 

You can also manage sales and purchase invoices, along with debit and credit notes, in one simple platform, saving time and reducing manual errors. Try Nomi today with a free trial and experience a smarter way to handle your bookkeeping.  

Frequently asked questions

1. What is an example of a debit and credit note?

Ans. A debit note example is when a supplier undercharges a customer by £200, and the buyer issues a debit note to request correction. A credit note example is when goods worth £300 are returned, and the seller issues a credit note to reduce the invoice amount.

2. How to use debit note and credit note?

Ans. A debit note is used to increase or correct the payable amount due to underbilling or extra charges, while a credit note is used to reduce the invoice amount because of returns, overcharging, or discounts.

3. Is a debit note a refund?

Ans. No, a debit note is not a refund. It is a document used to request an adjustment or increase in the payable amount, whereas a credit note is usually linked to refunds or invoice reductions.

4. When should you issue a debit note?

Ans. A debit note should be issued when an invoice has been undercharged, additional goods or services are supplied, or pricing errors need to be corrected.