---
title: Recording a customer refund or credit note
description: Recording a customer refund or credit note
---
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# Recording a customer refund or credit note
## How to create a credit note or apply a credit note to a future invoice
When you need to partially or fully cancel an invoice, use a credit note in Xero rather than deleting the original invoice. This maintains a clean audit trail.
### Creating a credit note
In Xero, open the original invoice and select ‘Credit Note’. Xero will create a credit note for the same amount. You can reduce the amount if it is a partial refund. Approve the credit note. If you are refunding cash, apply the credit note against the original invoice and process the refund payment from your bank account.
### If the customer takes a credit against a future invoice
Apply the credit note to a new invoice raised for the customer. In Xero, when approving the new invoice, use the ‘Allocate Credit’ option to offset the credit note against the new invoice amount. The customer pays only the net difference.
💡 **Important:** Never delete an approved invoice. Doing so removes it from your records and your VAT history. Use a credit note to reverse an invoice that has been raised incorrectly. This keeps a complete record for both bookkeeping and VAT purposes.
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