A credit note in Billing is raised against a specific bill, for a stated reason, and it tells Smart Books whether goods came back. Get those three things right and the note posts cleanly; get them wrong and your customer ledger, stock and GST return all drift apart. This guide walks through the Billing credit note screen so you can raise one correctly the first time.
When you need a credit note
You issue a credit note when the value of a sale you already invoiced goes down. Common cases are goods returned, short or damaged delivery, a wrong rate on the bill, a discount agreed after the invoice went out, or a cancelled order. Do not edit or delete the original invoice for these: the invoice stays as it was, and the credit note records the reduction against it.
For GST-registered businesses, a credit note also feeds your GST return. Section 34 of the CGST Act deals with credit notes, including a time limit for issuing one that affects your output tax. The limit and the reporting steps can change, so confirm them on the GST portal or with your CA. If you are still deciding between documents, see our guide on the tax invoice, bill of supply and delivery challan.
Where to find the credit note screen in Billing
In Billing, the credit note screen sits under the More menu as Credit note. It is available to people whose Billing profile includes the permission to raise credit notes. If you do not see it, or the page says raising a credit note is not part of your profile, ask your administrator to change your profile. Past notes appear in the credit notes register, where you can open any one to see its details.
Step 1: choose the customer, the bill and the date
Start with the customer. Billing searches your customers live in Smart Books as you type; the chosen account shows its name and GSTIN, or a note that the account has no GSTIN. Next, pick the bill you are crediting. The picker lists that customer's bills, and where Smart Books can supply it, shows how much of each bill is still unpaid.
The date must fall inside the financial year you have selected at the top of the page. If it does not, Billing tells you to change the date or switch the year. Pick the date the credit actually applies to, not whatever is convenient.
Step 2: say why you are raising it
The Reason field is required, and it does real work: it proposes whether this is a goods return or a value adjustment. The options are:
- Goods came back – items returned and going back into stock.
- Goods were damaged or short – short delivery, or damaged on arrival.
- The rate on the bill was wrong – a value correction; nothing comes back.
- Discount agreed afterwards – a discount settled after the bill went out.
- Order cancelled – the whole order was called off.
- Something else – explain it in the remarks.
You can still change the proposed mode yourself. Use the remarks box to leave a short note for whoever reads the entry later; it has a character limit, and Billing warns you if you go over.
Step 3: fill the lines, and decide on stock
Once a bill is chosen, Billing reads its lines from Smart Books so you start from what was actually billed instead of retyping from paper. Each line you credit is tied to the matching line of the original bill, and Smart Books remains the authority on how much can still be credited, since it counts every note already posted against that bill.
For a goods return, each line also asks for a warehouse and the condition of the goods: Good, Damaged, Opened or Scrap. Billing sends damaged or scrap goods only to a damaged-stock or quarantine warehouse in Inventory, so they are not counted as stock you can sell. Note that Smart Books and Inventory have no separate field for condition, so Billing writes it into the note's narration.
For a value adjustment, nothing moves in stock. The right-hand summary shows Stock movement: None, which is exactly what you want for a rate correction or a later discount. If you pick a goods return but add no returning quantity, Billing suggests switching to a value adjustment.
If you use Inventory alongside Billing, our guide on physical stock verification shows how to confirm returned stock matches your books.
Read the amount summary before you issue
The amount summary shows the subtotal, any discount and the total credit before tax. Billing does not calculate GST itself. For a GST-registered company, the GST row says Smart Books works it out, using the same split, place of supply and rounding as on the original bill. If the company is not registered for GST, no tax is added.
Billing also shows warnings that do not block you but are worth reading:
- the credit is more than the bill's value before tax, and Smart Books may refuse it;
- the bill is already settled in full, so the credit will sit on the customer's account rather than reduce what they owe;
- the credit is more than what is still unpaid, so the difference stays on the account.
Issue it, and what happens next
Press Issue and a confirmation box asks you to check the customer, bill, amount and stock effect. Issuing sends the note to Smart Books, which allots the credit note number, so Billing never invents one. Once posted, the note cannot be edited, so treat the confirmation as your last check. Billing may also show you Smart Books' own total and ask you to accept it if it differs from what you expected.
If you are interrupted, Save draft keeps the note in your browser until it is issued; the screen offers to pick up where you left off. After issuing, you can open the note, jump to the customer ledger, or start another.
Key takeaways
- Never edit the original invoice; raise a credit note against it.
- Choose the right bill and reason, because the reason drives goods return versus value adjustment.
- For returns, record the warehouse and condition so damaged goods stay out of sellable stock.
- Smart Books calculates the GST and allots the note number; check totals before you press Issue.
- Confirm Section 34 time limits and return reporting with your CA or the GST portal.
If you already bill customers through Billing, the credit note screen keeps the customer ledger, stock and Smart Books in step. You can read more about the app on the Aicountly Billing page, and it pairs well with the Money to Collect view for chasing what is still owed.