Credit notes when a customer reduces seats
How a software business corrects an issued invoice when a customer drops seats mid-period: credit note, void or new invoice, VAT, and leftover credit.
By Achekam · · 5 min read · For Software (SaaS) businesses in South Africa, Nigeria, Kenya
A customer on a quarterly plan writes in halfway through the quarter: two of their teams have been merged, and they want to drop a block of seats from today. You invoiced the full quarter at the old seat count a few weeks ago. Some customers have already paid by then; some have not.
Whatever your contract says about refunds, the books now need correcting, and the correction has to leave a trail your accountant and the customer can both follow. Deleting the old invoice and typing a new one is the one thing you cannot do once it has been issued, and it is the one thing you would not want to do anyway.
Credit note, void or a new invoice
Start by asking where the original invoice stands. The answer decides the tool.
| Where the invoice stands | What to do in Achekam |
|---|---|
| Still a draft | Change it or delete it. Drafts can be edited until they are issued. |
| Issued, with no payments or credits against it | An administrator can void it, which reverses its journal, and you issue a correct one. |
| Issued and paid, or part-paid | Issue a credit note from the invoice. |
| Issued, and the customer will never pay | Not a downgrade at all: a write-off, which needs a partner's approval. |
Voiding suits an invoice that was simply wrong, such as the wrong customer or a typing error. A seat downgrade is different: the invoice was right when it was issued and the customer's needs changed later. A credit note tells that story honestly. It shows the original charge, the reduction and the date of the reduction, which is what an auditor or a customer's accounts team will look for.
Crediting chosen lines rather than the whole invoice
In Achekam a credit note is always issued from the invoice it corrects. There is no free-standing credit note. You can credit the invoice in full, or only the lines you choose.
That matters for software invoices, which usually carry several lines. Take an invoice for the quarter with three lines: the seat subscription, an onboarding fee and premium support. The onboarding is done and the support level is unchanged; only the seats moved. Crediting the whole invoice would wrongly reverse the onboarding fee as well.
A clean way to handle it:
- Credit the seat subscription line only, leaving onboarding and support untouched.
- Raise a new invoice for the seats the customer keeps for the rest of the quarter, plus any seats used before the change, according to your contract.
- Send the customer both documents together, with a short note explaining the arithmetic in words: which seats, from which date, at which price.
Your terms decide the arithmetic. Some businesses credit unused seats for the remaining days; some only reduce seats from the next billing period and credit nothing. Whichever you choose, apply it the same way to every customer and write it into your order form.
VAT on the credit note follows the original invoice
You do not choose the VAT on a credit note. It uses its original invoice's date and tax codes. A line charged at South Africa's standard rate is credited at that rate; a line at 0% is credited at 0%; for a Nigerian or Kenyan business, each credited line keeps the tax code it had on the invoice.
This protects you if a rate changes between the invoice and the credit: the VAT you give back matches the VAT you charged. When an invoice line states no rate, VAT on it was taken at the rate in force on the invoice date, so the credit mirrors that too. Kenyan businesses will find KRA's practical answers on credit notes, carried-forward VAT credits and amended returns in its guidance on filing returns on iTax.
Each credit note is posted to the ledger when issued, and it can be downloaded as a PDF or e-mailed to the customer from Achekam.
Leftover credit held for the customer
If the customer had already paid the full invoice, the credit note leaves them in credit. Achekam holds that leftover credit for the customer rather than losing it.
Customer receipts work in a similar way. A payment can be recorded against one invoice or spread across several of the customer's invoices; a part payment leaves an invoice part-paid; and anything paid over what is owed is held on the customer's account.
Using the credit against the next invoice, or paying it back
Agree with the customer, in writing, what happens to the credit. There are two usual choices:
- Carry it forward. The credit stays held on the customer's account until their next invoice. Where the extra came from a payment, the receipt can be re-allocated to that later invoice.
- Pay it back. Administrators can refund or reverse a receipt in Achekam. If the customer originally paid online, the refund itself is made in the gateway's own dashboard and then recorded in Achekam by a person.
Tell the customer which you chose on the credit note e-mail, so their accounts team does not chase a refund you never planned to make.
A short checklist for every downgrade
- Confirm the effective date of the change with the customer, in writing.
- Check whether the original invoice is a draft, unpaid or paid.
- Credit only the lines that changed.
- Raise the corrected invoice for what the customer keeps, if your terms call for it.
- Decide whether leftover credit is carried forward or refunded.
- File the customer's request with the account, so the reason for the credit is on record.
Schools deal with the same problem when a learner leaves mid-term; the article on overpaid fees and leavers walks through their version. To prevent disputes about seat counts in the first place, route every order form past an approver, as described in order forms: internal approval, then the customer signs. If your invoices still live in a spreadsheet, start with moving a young company's books off spreadsheets.
Before the next downgrade request arrives, write your credit rule into your standard terms. The credit note then becomes a routine step rather than a debate.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
