The Document That Undoes a Sale
Every sale you make is documented in detail. The document that takes one back is four fields and a number. Ours records how much was credited and not what kind of money it was, nor how much of it was tax — and the quotation, which commits you to nothing, carries six tax and currency fields that the credit note does not.
Sales systems are built forwards. Quote, order, deliver, invoice, collect — that is the path everybody demonstrates, everybody tests and everybody buys. The reverse path gets built last, by fewer people, with less attention, and it shows in the schema in a way you can check for yourself in about a minute.
This matters more in a VAT market than in a sales-tax one, and every member of the East African Community runs VAT. A credit note is not a refund receipt or an internal adjustment. It is the instrument that corrects a taxable supply, which means it has to carry the same anatomy as the thing it is correcting: the net, the tax, and which money all of it was in.
A comparison anybody can run
Take three sales documents in one system and ask what each of them knows about money. Not what the screen shows — what the record holds.
What a quotation knows
- Whether tax applies at all.
- Which kind of tax it is.
- The rate.
- The tax amount.
- Whether the price was quoted inclusive or exclusive of it.
- The currency.
- Six fields, on a document that commits you to nothing and can be thrown away.
What a credit note knows
- Which customer.
- Which invoice, if one was named — and it need not be.
- One gross amount.
- A free-text reason, up to 255 characters.
- Whether it has been applied.
- Nothing about tax. Nothing about currency. No lines at all.
- On the document that reverses a taxable supply.
That is not an argument about our product being unusual. It is an argument about which end of a sales process gets designed carefully, and the answer in most systems is the end that brings money in. The proposal is modelled richly because it is what the demo shows. The reversal is modelled as a number because by the time anybody needs it, the sale has already been counted.
The document that commits you to nothing carries six tax and currency fields. The document that reverses a taxable supply carries none.
What follows from a single gross amount
Three things, and the third is the one nobody anticipates.
The tax split has to be reconstructed by hand. A return needs to know how much output tax is being reversed. If the credit note records only a gross figure, somebody has to go back to the invoice, work out the proportion, and carry it across — every time, by hand, correctly, or the adjustment is wrong in a direction nobody notices until an audit.
Partial credits are guesswork. Reversing an entire invoice is arithmetically simple whatever the schema. Reversing two lines of an eleven-line invoice — the delivered-damaged case, the priced-wrong case, the one that actually happens — needs to know which lines. With no line items on the credit note, the document cannot say. It records a total and a sentence of explanation.
And a credit note that is not applied to an invoice has no currency at all. This is the sharp one. When a note names an invoice, the currency can at least be inferred through that link. When it does not — a goodwill credit, a standing balance on a customer account, a credit raised before anybody has decided which invoice it lands against — there is no link, so there is nothing to infer from. It is a bare number sitting on a customer record.
A standing credit on a regional customer account
The figures are illustrative and the conversion is not something the system performs — we deliberately never convert. The point is the spread. In a single-currency business a missing currency field is harmless, because there is only one answer and everybody knows it. In a group trading across the EAC there are several answers, they differ by an order of magnitude, and the document does not record which one applies.
This is the same root cause as a defect we published a few hours before this post, where a budget report adds expense amounts in different currencies together because it ignores a currency column it stores. The pattern underneath both is one thing: money modelled as a number rather than as an amount and a denomination. Where that assumption was made early, it surfaces later in whichever place nobody was looking.
What a buyer in the region should do about it
Not panic, and not assume the competition is better — this is a common shape and most vendors have never been asked. Do run the check, on every system on your shortlist, in the demonstration rather than afterwards.
- Raise a credit note against a VAT-bearing invoice, then show me the tax element on the credit note itself rather than on the invoice behind it.
- Credit two lines of an eleven-line invoice. Does the document record which two?
- Raise a credit note not linked to any invoice. What currency is it in, and where is that stored?
- Show me the VAT return figures that a month of credit notes produces, and tell me which of them a person typed.
- Reverse a credit note that was raised in error. Is that a document, or an edit to an existing one?
- If we operate in two countries, can a credit note raised in one be applied to an invoice in the other? Should it be?
Low risk
One country, one currency, credits are rare and always whole-invoice
The gross-amount model costs you very little. The tax proportion is recoverable from the invoice in a minute and nobody is guessing about currency. Do not let this be the thing that decides your purchase.
Worth planning for
One country, but partial credits are routine
The line-level gap is the one that will bite, not the currency one. Every partial credit becomes a manual calculation somebody has to get right, and the error is invisible on the document. Ask how the vendor expects you to evidence a partial reversal.
Fix before you scale
Trading across two or more EAC currencies
An unapplied credit note with no currency is a real ambiguity on a real customer balance, and it compounds quietly. Get a currency onto the document before the volume makes it expensive to reconstruct.
Different conversation
Your authority prescribes what a credit note must show
Then this is a document-format requirement rather than a data-model preference, and it belongs in your evaluation alongside invoicing itself. Ask your adviser what is prescribed before you ask a vendor whether they do it.
Everything about a sale is documented. The undoing of one is a number and a sentence.
Three, and the first is smaller than it looks
The schema comparison at the top of this post is also the specification. The pattern to copy already exists on the quotation, one table away.
Tax and currency on the credit note
The same fields a quotation already carries — tax type, rate, amount, inclusive or exclusive, and a currency code — on the document that reverses a supply. Small, well-specified, and it removes a manual step from every return that includes a credit. We would treat it as a correction rather than a feature.
Line items, so a partial credit says what it credits
A credit note that reverses named lines of a named invoice, carrying each line's own tax split. This is the larger of the three and the one that changes what the document can evidence rather than merely what it stores.
A credit note that can itself be reversed
A note raised in error is currently corrected by editing rather than by a document. In a market where the credit note is itself a fiscal document, an edit is not an acceptable answer and a reversing document is.
What we will not do is tell you how much of a credit is tax. That is a determination about a supply, it depends on facts the software does not hold, and a vendor computing it for you is issuing a tax opinion. What we will build is a document with somewhere to put the answer your adviser gives.
Talk to us about credit notes and returnsThe verdict
The reverse path is where sales systems are thinnest, and the way to find out how thin is to look at what the reversing document stores rather than what the screen displays. Ours holds a customer, an optional invoice, one gross amount and a sentence — while the quotation, which binds nobody, holds six fields describing tax and currency. That is not a defensible ordering and we are not going to defend it. It costs a single-country business almost nothing and it costs a group trading across four currencies a genuine ambiguity on every credit that has not yet been applied to an invoice.
