It may happen that you need to cancel a sales invoice, and/or refund part of your income to a client. This can be easily done by issuing a Cancellation Invoice. In this article, we explain how this works and what to do in the app.
What is a Cancellation Invoice?
A Cancellation Invoice is an official financial document sent to a customer to formally nullify a previously issued invoice.
It can either:
Reverse the full amount
Offset part of it in case of a partial refund
By issuing a cancellation invoice, the original invoice becomes invalid in your accounting system, preventing duplication, errors, or incorrect tax reporting.
When do you need to issue a Cancellation Invoice?
You need a cancellation invoice in situations such as:
Full cancellation of a sale
Customer cancels the order before or after payment.
Partial refunds
Customer returns part of an order or you reduce the agreed fee.
Errors on the original invoice
Wrong amount, incorrect currency, VAT/tax number missing, or other incorrect details.
Price changes
Over- or understatements.
Goods or service issues
Items damaged in transit, rejected service, or overpayment.
Tax adjustments
Wrong VAT rate or exemption applied.
Why do you need to issue a Cancellation Invoice?
By issuing a cancellation invoice, the original invoice is officially nullified in your accounting system. This process ensures that the incorrect invoice is no longer valid, preventing any confusion or errors in your bookkeeping. Once the cancellation is sent out, you have to create and send a new, corrected invoice.
Properly handling cancellation invoices is essential for maintaining transparent and accurate financial records. It also helps avoid situations where amounts are mistakenly recorded twice, which can lead to discrepancies in your tax reporting or accounting.
Example: If your client return goods back to you against which the invoice and payment is already issued, rather than deleting the invoice and paying back off the record, an official Cancellation Invoice is issued against the initial invoice to offset the impact of the amount as well as the VAT.
In practical terms, a Cancellation Invoice adds a negative income into your accounting, and will reduce your income.
Your accounting will look like so:
Original invoice = +100€
Cancellation Invoice for partial refund = -50€
Total income = +50€
What should be included?
There are several important elements that a cancellation invoice must contain to be legally and professionally valid:
The term "Cancellation Invoice" should be clearly stated on the document.
A negative amount can be included to offset the original invoice, although this is not strictly required as long as the document is clearly labeled as a cancellation.
The cancellation invoice must contain all mandatory details identical to the original invoice, including:
Name and address of the sender and recipient
Tax number or VAT ID
Invoice number
Invoice date
Description of goods or services provided
Any applicable taxes
Note: A cancellation invoice is not the same as a credit note. These are different financial documents used in different contexts.
Prepare and send the cancellation invoice
Once your cancellation invoice is prepared, don’t forget to send it to your customer to officially document the cancellation of the original invoice. After that, you can go ahead and create a new, corrected invoice with the updated and accurate details.
From the revenue screen, simply click the "+" button > Create Cancellation invoice
Add the details (client, service/product you want to cancel)
Add a note which original invoice you want to cancel
Finalize the document and send it to your client
⚠️ Very important: Once you sent the cancellation invoice to your client, make sure to mark it as paid (it need's to be the same status as the original invoice, to be considered for your bookkeeping). So your original invoice and your cancelled invoice should be marked as paid or either both as not paid.
Write a new invoice (if needed)
Depending on your situation you might stop at this point. This is the case if you only had to cancel a part of your original invoice. But in case some information was missing like your tax number, you need to issue a new invoice with all the correct data.
With regards to the new invoice, make sure that you include all the necessary information.
What should be included on an invoice?
There are strict rules set out by the German government on what a legally valid invoice has to look like. You can of course choose which font to use and include your logo, but the content of the invoice should contain at least the following information:
Your full name
Your (professional) address
The full name and address of the invoice recipient
Your tax number or, if applicable, your VAT number
The date your invoice was created
A consecutive invoice number
The quantity and a description of the goods delivered or the nature and scope of a service provided
The price for the listed services
The date of delivery or performance of the service
The applied VAT rate for the services rendered
You may also be required to provide any of the following optional additional information:
Details of any discounts
References to a tax exemption e.g. §19 Kleinunternehmer or §4 exemption
⚠️ Very important: Please make sure to date back all the dates (same as the original invoice).
If you have further questions about cancellation invoices or issuing new invoices, please contact us via taxcoach@accountable.eu - we are here to help! :)