Credit notes

A credit note is a document that reduces or cancels the amount owed on an invoice. In Financica, credit notes are first-class records that appear alongside regular invoices in the Expenses and Revenue sections.

How credit notes work

Credit notes follow the same lifecycle as regular invoices — they can be received, posted, voided, and deleted. The key difference is that a credit note represents a negative amount: money owed back to the buyer.

Credit notes can be:

• Inbound — A credit note from your supplier, reducing what you owe them. Appears in Expenses.
• Outbound — A credit note you issue to your customer, reducing what they owe you. Appears in Revenue.

Document provenance vs. financial application

A credit note carries two distinct relationships to invoices, which Financica tracks separately:

• Issued for — The invoice this credit note was issued in response to. This is a document-level fact, taken directly from the credit note itself (e.g. a UBL BillingReference field, or a reference number on a PDF). It records why the credit note exists. Financica shows this as "Issued for invoice [number]" at the top of the credit note detail page. Not all credit notes reference a specific invoice (e.g. goodwill credits).

• Applied against — The invoice(s) whose outstanding balance this credit note has been used to reduce. This is a financial fact recorded in your books when you actively apply the credit. A credit note issued for invoice A can legitimately be applied against invoice B if that better suits your accounting.

These two concepts use similar language but are independent. A credit note can be issued for one invoice and applied against another, or applied in partial amounts across multiple invoices.

Creating credit notes

Credit notes can enter Financica in several ways:

• Upload — Upload a PDF or image of a credit note. The OCR engine extracts the data just like a regular invoice.
• UBL import — Upload a UBL XML credit note for accurate structured data import.
• Peppol — Receive credit notes electronically over the Peppol network. See Electronic invoicing.
• Stripe sync — Credit notes from Stripe are imported automatically when your Stripe integration is connected.

Applying credit to an invoice

Once you have a credit note, you can apply it against one or more invoices to reduce their outstanding balance. Open the credit note detail page and use the Credit reconciliation section.

1. Select the invoice you want to apply the credit to. Financica suggests candidate invoices that share the same direction, currency, and counterparty. If the credit note references a specific invoice (the "issued for" link), that invoice appears as the default suggestion.
2. Enter the amount to apply (up to the remaining credit balance).
3. Click Apply.

When credit is applied:

• Both documents are posted to books if they have not been posted yet.
• A netting journal entry is created that settles both documents in the ledger (see below).
• The credit note's remaining balance decreases by the applied amount.
• The target invoice's balance due decreases by the same amount.
• Both records' payment statuses update automatically (e.g. from "Unpaid" to "Partially paid" or "Paid").
• The settlement appears in the Application history of the credit note and in the invoice's linked transactions list as a "Credit note settlement".

You can apply a credit note partially across multiple invoices, or apply the full amount to a single invoice. To remove an application, click Remove in the Application history.

Refund obligations: when a credit note exceeds the invoice's outstanding balance

Applying a credit note to an invoice only makes sense up to the invoice's remaining outstanding balance. Anything beyond that is not a settlement — it is a refund obligation: money that needs to leave (or arrive in) your bank account to actually return funds to the counterparty.

Financica tracks the refund obligation as the credit note's remaining "Due" amount. The lifecycle has three states:

1. Issued. The credit note exists. Its full value is outstanding. No cash has moved.
2. Partially settled by application. The portion that fits within an invoice's outstanding balance is applied; the invoice's balance and the credit note's "Due" both drop by that amount. No cash moves.
3. Settled by refund. The remaining "Due" is cleared when a refund payment is recorded against the credit note from a bank account, just like a cash payment settles an invoice.

A worked example for an outbound credit note:

• A customer pays a €1,000 invoice in full. The invoice is "Paid", balance €0.
• You decide to refund them and issue a €1,000 credit note against that invoice.
• Because the invoice has no outstanding balance, none of the credit applies to it. The credit note shows "Due €1,000" — your obligation to refund.
• You wire €1,000 from your bank to the customer and record that bank movement as a payment against the credit note. The credit note's "Due" drops to €0. Both documents are now closed.

The same logic applies in the other direction. An inbound credit note from a supplier is a refund owed to you until you record the bank inflow that settles it.

The original invoice's status does not change when the credit note is issued — it stays "Paid". A paid invoice represents a historical fact; the new obligation lives on the credit note.

What happens in your books when credit is applied

Applying a credit note to an invoice produces up to two transactions in your ledger, depending on whether the documents have already been posted.

The credit note posting (if not yet posted)

If the credit note has not been posted to books, Financica posts it automatically when you apply it. This creates a journal entry with reversed amounts — the mirror image of a regular invoice posting:

For an inbound credit note (expense side):

Account	Effect
Accounts Payable	Debit — reduces the amount you owe
Expense / VAT accounts	Credit — reverses the original expense recognition

This posting records the economic fact that the credit note exists and reduces your liability, independently of how you ultimately apply it.

The netting transaction

After both documents are posted, a second transaction — the netting entry — records the settlement between the invoice and the credit note in the ledger:

Leg	Account	Direction	Purpose
Invoice settlement	Accounts Payable	Debit (inbound)	Closes out the invoice's open payable
Credit note offset	Accounts Payable	Credit (inbound)	Consumes the credit note's available balance

Both legs are on the same Accounts Payable (or Receivable) account. This is correct and intentional: the entry explicitly links the two opposing balances in the sub-ledger and marks both documents as settled. The net effect on the AP account balance is zero — only the per-document balances change.

This two-transaction design preserves the independent life cycle of each document. The credit note posting records when the credit was recognised; the netting transaction records when it was consumed. If you later remove the application, only the netting transaction is reversed — the credit note remains posted.

In the Linked transactions section of either document, netting entries appear labelled "Credit note settlement" rather than as bank payments, since no money moves through a bank account.

Automatic credit applications

When a credit note arrives from an external source that knows which invoice it relates to, Financica auto-applies the portion that fits within the parent invoice's current outstanding balance. The remainder, if any, stays on the credit note as a refund obligation, following the lifecycle described above.

This rule is source-agnostic by design: only the part of the credit that genuinely settles an unpaid balance is applied automatically. Anything that would push the parent invoice into "overpaid" state is left as a refund obligation for you to settle explicitly when the cash actually moves.

Current sources:

• Stripe — Stripe credit notes split their amount into a "pre-payment" portion (the part that reduces an unpaid invoice balance) and a "post-payment" portion (the part that creates a refund). Financica auto-applies only the pre-payment portion.
• UBL — If an incoming UBL credit note references a specific invoice number, Financica detects the document relationship and pre-fills the invoice suggestion in the reconciliation panel. The credit is not applied automatically — you still confirm the application.

Credit notes in reports

Posted credit notes appear in your income statement, balance sheet, and VAT returns just like regular invoices, but with reversed amounts. An outbound credit note reduces reported revenue; an inbound credit note reduces reported expenses.