What is a Credit Note: Essentials for Singapore Businesses

There will be times when mistakes are made in business and you’ll need to make amendments to ensure that your customers are satisfied and to protect business relations. You’ll also need flexibility while ensuring traceability in your accounting to make changes to billings.

In such cases, you could issue a credit note that updates your customers on credit owed to them.

The credit note also updates your accounting team on the changes made to the original invoice.

In this article, we’ll review what is a credit note, why they are important for businesses in Singapore and a simple process on how to issue credit notes. You’ll also discover how Wise Business can make it easier for your business to manage international business payments more efficiently and with less cost.

What is a credit note?

A credit note, also known as a credit memo, is an accounting document issued by a seller to indicate the amount of money or credit owed to the buyer.

Sellers usually issue a credit note to correct a mistake or to indicate any changes in the original invoice. Sellers may also use a credit note if there is a partial reduction in the original price, when a customer has been billed in advance, or when goods or services were not accepted per the contract.

For example, your team accidentally left out an item in the deliverables when making a large shipment to a client. You could either issue a credit note for a refund or as a credit toward the client’s next order. This provides a quick resolution, maintains trust, and if your client opts for the credit option, ensures future business.

What should you include in a credit note?

Your credit note should be formatted cleanly, with key information stated clearly.

According to IRAS¹, a credit note should include the following details:

• Header text indicating “Credit Note”
• An identification or serial number
• Date of Issue
• Your company’s details (Name, address, contact details, GST registration number if applicable)
• Your customer’s details (Name, address, contact details, GST registration number if applicable)
• Original invoice number and date of issue
• Description and value of the original goods or services that you are crediting for
• Total amount credited, excluding taxes
• Reason for the credit
• Rate and amount of tax credited
• Total amount credited, including taxes

Your credit note should also include any additional terms and conditions if the credits can only be used in future transactions.

GST declarations on credit notes for Singapore businesses

If your business is GST-registered in Singapore, keep in mind that you will need to declare any adjustments arising from credit notes when submitting your GST return².

If the credit note is issued due to changes in your standard-rate goods or services, you’ll need to declare the adjustments in the GST F5 form for the appropriate accounting period. If the credit note is issued due to errors in GST treatment, you’ll have to declare the adjustments in the GST F7 form instead.

Alternatively, you can choose not to adjust the GST amount when issuing a credit note if the following conditions are fulfilled:

1. Both you and your customer agree in writing not to adjust the original amount. Both parties must retain the written agreement as part of their GST records.
2. Your customer is a fully taxable person.
3. The credit note should contain the statement; “This is not a credit note for GST purposes”.

If you outsource your GST declaration process, your accountant should be able to consolidate your declarations for your company as long as clear records are kept.

You should note that the IRAS have the right to impose penalties if there are errors, omissions and discrepancies³.

How to issue a credit note as a seller

Issuing a credit note is relatively easy, here’s how you can go about issuing a credit note:

1. Identify the reason for the credit note

As mentioned above, a credit note is usually issued to correct mistakes in an invoice. You should consider issuing a credit note only if the invoice has been issued and accepted by your customer or buyer.

Common reasons to issue a credit note include:

• Correction of mistakes in the invoice.
• Changes or waivers to pricing before/after goods or services were delivered.
• Goods or services not supplied or not accepted per the contract.
• Discounts are being offered on the original invoice.

There may be instances where you need to issue a credit note in response to a debit note from a buyer. In such cases, your credit note should reflect the same figures as the debit note.

Gather required information

The key information required in the credit note is mentioned in the section above.

To ensure a smooth process, you should have the required information on hand before attempting to create a credit note.

Create Credit Note

If you are using accounting software or invoicing software, you may have the function to create a credit note that is linked to your original invoice.

Otherwise, refer to the information of the original order to create a credit note. If you do not have an existing template, you could consider repurposing your invoice template but label it as a credit note. Make sure to update all essential information regarding the reason for the issuance of the credit note.

Issue the Credit Note

Depending on your company’s internal policies, you may need to get the credit note vetted and signed off by a manager or your finance department.

Upon approval, you can send the credit note to your customer, along with instructions on any next steps they need to take in order to process the credit note. Make sure to keep a copy of the credit note for your accounting records.

Credit note vs Invoice: are they the same thing?

Although both the credit note and invoice are issued by a seller to a buyer, they serve very different purposes.

The key difference between a credit note and an invoice is that a credit note indicates that the seller owes credit to the customer, in contrast, an invoice is a document created to request payment from the customer.

While a credit note is only issued on a case-by-case basis, an invoice is a common document issued in every transaction, in order to request payment. Instead of creating invoices manually, relying on tools like our free invoice generator tool can help businesses save a significant amount of time.

Debit note vs Credit note

A debit note tends to be confused with a credit note, but it performs different functions.

A credit note is issued by a seller and reduces the amount payable from the original invoice. In contrast, a debit note is issued by the seller that increases the amount payable from the original invoice. In some cases, a debit note may be issued by the buyer to request a credit adjustment or to request the return of goods.

In simple terms, a debit note tells the buyer that they owe the seller money (or credit) while a credit note is the opposite, it tells the buyer that money is due from the seller.

Wise Business makes cash flow management easier

A credit note allows a seller to make amendments to mistakes in goods or services deliveries for which invoices have been issued. It also offers the flexibility to update orders in the case where buyers are not satisfied with the goods or services received.

It is crucial to keep track of the credit notes issued by your company to maintain a clear view of your company’s cash flow and expenses.

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Sources checked on 7th March 2025