How Credit Notes Work

Credit notes let you apply reductions to previously issued Invoices, whether for refunds, adjustments, or corrections. Understanding how Credit Notes are generated, referenced, and applied helps keep billing accurate and audit-ready.

A Credit Note is like a reverse Invoice: it details the items, discounts, and taxes you are crediting back to your Customer. Your revenue is essentially your Invoices minus your Credit Notes.

What generates a credit note?

A Credit Note is generated in the following situations:

• Plan change prorations (that is, migrations), where the Customer receives credit for the unused portion of the plan period they've already paid for.
• Prorated product allocation changes where the price is reduced, and the Customer receives credit for the price reduction.
• Partial voids on Invoices.
• Refunds for Invoices where you no longer expect payment.
• General service credits (credit or service you owe the Customer) are converted to a Credit Note when they're drawn on to pay an Invoice.
• If your site is connected to Maxio Core, applying a credit memo to an Invoice in Maxio Core creates a matching Credit Note in Advanced Billing.

See How each credit note case works, below, for the specific origin and application Invoice for each case.

How origin invoices work

Most Credit Notes reference one or more origin Invoices that are being credited. An Invoice that serves as an origin Invoice for a Credit Note usually has its line items referenced on the Credit Note: any line item being credited also appears on the Credit Note.

Credit Notes' origin Invoices are available in the API under the origin_invoices key. If you use the API to pull details of the origin Invoice and the Credit Note, the credit note line item's uid is derived from the origin line item's uid: a cn prefix is added, along with a numeric suffix. For example, origin line item li_12345 corresponds to credit note line item cnli_12345_1. The one exception is a Credit Note created from a Maxio Core credit memo sync, whose line item uid values are copied unchanged from the credit memo.

Single origin invoice

Credit Notes often reference a single origin Invoice. For example, imagine a Customer is invoiced (via Invoice #1) for the Basic Plan on Jan 1st and pays in full. Then, on Jan 15th, the Customer upgrades to the Pro Plan. First, the Customer is given a credit for the unused portion of the Basic Plan. This credit is represented on Credit Note #2, whose origin invoice is recorded as Invoice #1. Next, the Customer is invoiced for the partial period of the Pro Plan from Jan 15th to Feb 1st on Invoice #3. Finally, the Credit Note is applied to Invoice #3 (since Invoice #1 is already paid), reducing the amount due on Invoice #3 by the amount of the Credit Note. See How credit note applications work, below.

Invoice and Credit Note numbers share one sequence, so numbers like Invoice #1 and Credit Note #2 in this example come from the same running count.

Multiple origin invoices

Credit Notes can sometimes reference more than one origin Invoice. This indicates that line items from multiple Invoices are the origin for the credit being issued.

This can happen if there is a mid-period prorated allocation change on a proratable Product. For example, say there are 10 units of a $1/unit/mo Product allocated at the beginning of the Subscription period. The Customer is charged $10 for these units. Then, midway through the period, the Customer increases to 20 units, and you capture a prorated charge for a percentage of the cost difference between 10 units and 20 units. Later, the Customer upgrades to a new Plan that includes 100 units, so needs to be given a credit for the unused portion of the units they already paid for. In this case, the Customer receives a credit for both the original 10-unit charge and the prorated charge that took them from 10 to 20 units. The Credit Note references both line items and, therefore, both Invoices.

How discounts and taxes carry over

Credit Notes capture the return of discounts and taxes as well. For example, given an original line item subtotal of $100, with a 10% discount (-$1.00) and a 10% tax ($0.99), a credit of that line item includes references to the same discount and same tax as the original line.

How credit note applications work

Credit Notes can be applied to Invoices, reducing their amount due. Often, a Credit Note's origin Invoice is different from the Invoice to which it is applied. Consider an Invoice that has already been paid and is then credited: once the Credit Note is created, it can be applied to the next Invoice to reduce the amount owed by the Customer. Since Advanced Billing is a recurring billing system, this is the default behavior.

Credit Notes' applications are available in the API under the applications key. Conversely, Invoices indicate the Credit Notes applied to them under the credits key.

How each credit note case works

The following are some examples of what might cause the creation of a Credit Note. When considering an origin Invoice, we do not differentiate between open and paid Invoices. An open Invoice at the time of a product migration is still expected to be paid in the future, so we generate a Credit Note for eligible open amounts the same as we would for a paid amount.

If the open Invoice is not expected to be collected on, void it before the Credit Note generation occurs. Or, in the case of a Product allocation downgrade, explicitly set the downgrade scheme to "Do Not Credit." (See Configure Proration Schemes for Products.)

Example 1 - Upgrade/downgrade migration

The pro-ratable line items on the previous Invoice are credited.

• Origin invoice: Previous recurring Invoice
• Application invoice: Next recurring Invoice

Example 2 - Mid-period/prorated product allocation downgrades

The credit amount is determined by calculating the cost difference, optionally with proration, from the currently allocated quantity to the new quantity.

• Origin invoice: N/A
• Application invoice: Next recurring Invoice

Example 3 - Partial invoice voids

The remainder (unpaid portion) of every line item on the Invoice is credited.

• Origin invoice: Invoice being voided
• Application invoice: Invoice being voided (same as origin)

Example 4 - invoice refunds

The amount being refunded of every line item on the Invoice is credited.

• Origin invoice: Invoice being refunded
• Application invoice: Invoice being refunded (same as origin)

Example 5 - General service credit

When a service credit is given, the amount sits as a Service Credit balance on the Subscription, waiting to be converted to a Credit Note when it's drawn on to pay an Invoice.

• Origin invoice: The Invoice receiving the service credit
• Application invoice: The Invoice receiving the service credit (same as origin)

Example 6 - Maxio Core credit memo application

If your Advanced Billing site is connected to Maxio Core, applying a credit memo to an Invoice in Maxio Core creates the matching Credit Note in Advanced Billing and applies it to the corresponding Invoice there. If the same credit memo is later applied to another Invoice, the additional application is recorded on the same Credit Note rather than creating a second one.

• Origin invoice: The Advanced Billing Invoice matching the credit memo's origin Invoice in Maxio Core, when the credit memo has one; otherwise the Credit Note is built from the credit memo's own line items
• Application invoice: The Advanced Billing Invoice matching the Invoice the credit memo was applied to in Maxio Core

Related information

To reverse a Customer payment rather than adjust an Invoice with a Credit Note, see Refund an Invoice.

For voiding an Invoice entirely, see Void an Invoice.

To manually apply a Service Credit balance to an open Invoice, see Record and Manage Invoice Payments.

For removing Advanced Billing Service Credits after they sync to Maxio Core, see Remove Advanced Billing Service Credits After Sync.

When an invoice won't be paid at all and needs writing off rather than crediting, see How do I handle bad debt?.