June 9, 2022Dated: | Byadmin admin | Did you know that you cannot cancel an invoice once you have dispatched it? Then how do you correct mistakes in your invoice? Despite being cautious, you could make mistakes while generating invoices by missing out on adding discounts or entering the details incorrectly. But then, if you cannot cancel or edit the invoice after sending it across to your clients, then what do you do? The solution is simple—send a credit note for canceling invoices. What is a Credit Note? A seller issues a legal document, the credit note, to his buyers, agreeing that he (seller) must refund a certain sum of money as stated in the instrument to them (buyers). A buyer may also receive a credit note from the seller when the seller writes off the amount due from the buyer. Such a credit note indicates to the buyer that the seller doesn’t expect him to pay him the amount in the legal instrument. For instance, a buyer, Mr. X, may buy merchandise from Seller Mr. Y. If the goods arrive at the buyer’s location in a damaged condition or if the product sent is not in accordance with the order after the buyer made advance payments, the seller will issue a credit note to intimate the buyer such an amount is due to him. All businesses in the UAE dealing in taxable supplies that exceed AED 375 000 must register for UAE-VAT, which is why there is a need to send tax credit notes. Continue reading to know more about tax credit notes. What is a Tax Credit Notes? There is a VAT regime in the UAE whereby the FTA charge a 5% VAT tax on taxable supplies. Suppose a buyer returns a part or whole consignment of taxable supplies after VAT tax payments; They should reverse the VAT charges. The seller will issue a tax credit note to effect the reversal of UAE-VAT tax payments. For instance, if a company sells 100 bicycles to its client and 5 of them arrive in damaged condition at the buyer’s location. The buyer will return the damaged merchandise, for which the seller company will issue a tax credit note for the amount due to the buyer from the seller. How to Cancel Invoices? A seller sends a legally binding document to the buyer in lieu of the amount due to him for supplying goods and services to him. However, if the invoice contains incorrect data and the seller realizes his folly only after sending out the invoice to the buyer, he can cancel it by: Sending a Credit Note For Canceling The Invoice The credit note is the payment of the incorrect invoice to avoid outstanding payment amounts in the books of accounts. It is also to intimate the customer that no money is due from them. The bookkeeper balances the books of accounts of the organization by considering the credit note payment of the invoice. Re-Send a Fresh Invoice After the cancellation of invoices via a credit note and the relevant entries passed in the books of accounts, the business will issue a new invoice to its customer after inputting the correct details towards payments from the customers. Conclusion Credit notes signify the outgo of funds from the business and is a negative transaction. On the other hand, invoices are positive transactions that signal the inflow of money into the company. Flyingcolour provides you with credit note and invoice templates to reduce and simplify your work in receiving payments from your customers. Book your free consultation with us to know more about the comprehensive services.