Raising a Credit Note

A credit note is used to partially or fully refund a customer against a paid invoice in Xero. When you raise a credit note through the admin system, it creates a credit note in Xero and allocates it against the original invoice, putting credit onto the customer’s account.

Use this with care. You don’t usually need to raise a credit note by hand — credit notes are normally created automatically when you return or cancel items on an order. Only raise one manually when you genuinely need to credit a customer outside of a return or cancellation, and be sure of the amount before you save.

Once a credit note exists, it can be used in one of two ways:

• Applied against a future order — the credit sits on the customer’s account and can be put towards their next order (see Applying Available Credit to an Order).
• Refunded back to the customer — if you are actually returning money to the customer, refund the credit note through Braintree so the funds go back to their card.

How to Raise a Credit Note

1. Open the order in the admin system
2. Click Add Payment/Refund
3. In the Transaction Type dropdown, select Credit Note
4. Enter the credit amount as a negative value (e.g. -50.00)
5. Add a reference or note describing the reason for the credit
6. Optionally change the order status
7. Click Save

What Happens When You Submit

When the transaction is saved, the system will:

1. Record the negative transaction against the order locally
2. Look up the Xero invoice linked to the order
3. Verify the invoice is marked as PAID in Xero
4. Create an AUTHORISED credit note in Xero for the specified amount
5. Allocate the credit note against the original invoice
6. Log the action in the order’s audit trail

The credit note will appear in Xero linked to the original invoice. The customer’s account will show the credit, which can be applied to future invoices or refunded.

When It Will Succeed

A credit note will be raised successfully when all of the following are true:

• The transaction type is Credit Note
• The amount is negative
• The order has a linked Xero invoice
• The Xero invoice status is PAID
• The Xero API connection is active and authenticated

When It Will Fail

The transaction will be blocked and an error message shown if:

Scenario	Error
The Xero invoice is not yet paid (e.g. still Authorised or Draft)	“Credit notes can only be raised against paid invoices”
The order has no linked Xero invoice	No credit note is created (transaction is recorded locally only)
The Xero API connection is down or the token has expired	The request will fail with a Xero connection error

Applying Available Credit to an Order

When an order has an outstanding balance, the system checks Xero for any available credit notes belonging to that customer. If credit is available, an Apply Credit button is displayed on the order.

Clicking this button will:

1. Fetch all authorised credit notes for the customer from Xero that have remaining credit
2. Allocate the available credit against the order’s invoice, up to the outstanding balance
3. Record a credit note transaction against the order
4. Update the order status to Paid if the full balance is covered

This allows you to use credit generated from one order (e.g. a return or cancellation) to pay for another.

Other Negative Transaction Types

If you record a negative amount using any other transaction type (e.g. Goodwill, Manual Card Payment, Bank Transfer), the transaction is recorded locally only. No credit note is created in Xero and no interaction with Xero occurs.

Viewing Credit Notes

Credit notes created through this process will appear in:

• The order’s transaction list in the admin system (as a negative amount)
• The order’s audit trail with the entry: “Xero: Created and allocated credit note [number] ([amount]) to invoice”
• Xero under the customer’s credit notes, allocated against the original invoice