How do I invoice clients and apply credits in the US?

Invoicing Clients and Applying Credits in the US: A Practical Guide

Invoicing sounds simple—send a bill, get paid, move on. But in the US, the “simple” version can get messy fast once you add sales tax rules, payment terms, partial payments, refunds, discounts, and the need to keep clean records for your accountant (and potentially the IRS). The good news is that you don’t need to be an accountant to invoice professionally. You just need a consistent system that captures the right details, explains what you’re charging for, and makes it easy to apply credits without confusion.

This guide walks through how to invoice clients and apply credits in the US in a way that is clear, compliant, and friendly to clients. It’s written for freelancers, contractors, agencies, consultants, and small businesses that invoice for services, products, subscriptions, retainers, or milestone-based work. Throughout the article, you can assume your invoicing tool has the features you’d expect in a modern system—templates, line items, taxes, discounts, payment links, partial payments, credit notes, customer balances, and reporting—so you can implement these practices smoothly in Invoice24.

What a “Proper” Invoice Looks Like in the US

In the US, there isn’t one universal law that dictates the exact invoice format for every industry, but there are widely accepted standards that make invoices legally and operationally useful. A proper invoice should contain enough information to prove what was sold, when it was sold, who bought it, how much is owed, and how the client can pay.

At minimum, include the following:

Business identity: Your legal business name (or your personal name if you’re a sole proprietor), business address, phone/email, and optionally your logo.

Client identity: Client name and address (and contact email for delivery and payment reminders). For larger clients, include the department name (Accounts Payable) and any internal billing contact.

Invoice number: A unique invoice number that follows a consistent sequence. This is critical for bookkeeping, disputes, and credit notes. Many businesses use formats like 2026-00123 or INV-00123.

Invoice date and due date: The date the invoice is issued and the date payment is due.

Payment terms: Net 15, Net 30, Due on Receipt, or custom terms. If you charge late fees, include the policy here (and in your contract).

Itemized charges: Clear line items with descriptions, quantities, rates, and subtotals. Avoid vague “services rendered” invoices unless your client explicitly requests it.

Taxes (if applicable): If you must collect sales tax, show the tax rate and amount separately.

Discounts (if applicable): Show discounts as their own line or as a discount field so the client sees the math.

Total amount due: The final total, how much has been paid (if partial payments are allowed), and the remaining balance.

Payment instructions: Methods accepted (ACH, credit card, check, wire) and any required details. If you accept online payments, include a “Pay Now” link or button.

Notes and references: Purchase order number, project name, service period, or contract reference if your client needs it to approve payment.

A clean, complete invoice isn’t just professional—it prevents delays. Many invoices are paid late simply because the client’s AP team doesn’t have the information they need to route and approve the bill.

Before You Invoice: Set the Ground Rules

The smoothest invoicing process starts before any work begins. A short written agreement (a contract, statement of work, or even a signed proposal) should clarify billing expectations so invoices don’t become negotiations.

Here are the ground rules to set upfront:

Scope and deliverables: What is included, what is not, and what counts as extra work.

Pricing model: Hourly rate, fixed fee, retainer, subscription, or milestone payments. For hourly work, specify how you track time and minimum billing increments (for example, 15-minute increments).

Billing schedule: Upfront deposit, monthly billing, milestone billing, or completion billing.

Payment terms and late policy: Net 15/30, late fees, and whether work pauses after nonpayment.

Reimbursement rules: Travel, software, third-party services, and how receipts are handled.

Taxes: Whether sales tax applies (more on this later) and how it will appear on invoices.

Credits and refunds: When you issue credits, how they’re applied, and whether they expire (if that’s part of your policy and allowed under applicable rules).

Once these terms exist in writing, your invoices can simply reflect them. That reduces disputes and makes applying credits straightforward because the client already knows what to expect.

Step-by-Step: How to Create and Send a Client Invoice

Even if you’re experienced, it helps to follow a repeatable checklist. A consistent process means fewer mistakes and faster payment.

1) Confirm Client Billing Details

Start by verifying the client’s billing profile:

Correct legal name and address: Especially important for businesses that require invoices to match vendor records.

Billing contact email: Send invoices to the right person or AP inbox.

Purchase order requirement: Some clients won’t pay without a PO number listed on the invoice.

Currency: Most US invoices are in USD, but confirm if you work with international clients paying in USD.

Tax settings: Whether you are charging sales tax and at what rate (if applicable).

2) Use Clear Line Items

Line items are where clarity pays off. A good line item answers: What is it? When was it delivered? How is it priced?

Examples of strong line item descriptions:

Services: “Website design – homepage and template set (milestone 2), per SOW dated Jan 5, 2026.”

Hourly: “Consulting services – Jan 1–Jan 15, 2026 – 12.5 hours @ $150/hr.”

Subscription: “Monthly maintenance – Feb 2026 – flat fee.”

Products: “Custom printed materials – batch #1042 – 2,000 units.”

If you’re billing for multiple deliverables, separate them into multiple line items. It helps the client approve the invoice faster and makes credits easier later if something changes.

3) Add Payment Terms That Match Your Agreement

Your terms should be visible and unambiguous. Common options in the US include:

Due on Receipt: Useful for small projects, but may be ignored by clients with strict AP cycles.

Net 15 or Net 30: Standard for many service providers.

Milestone terms: “50% due at kickoff, 50% due upon delivery.”

Also consider whether you’ll accept partial payments and whether you’ll offer early-pay discounts. If you do, make sure the invoice reflects it clearly.

4) Include a Service Period (When Relevant)

For recurring services, retainers, subscriptions, or ongoing consulting, include the service period on the invoice (for example, “Service period: Feb 1–Feb 29, 2026”). This reduces back-and-forth and helps clients match charges to internal budgets.

5) Offer Convenient Payment Methods

In the US, clients often prefer:

ACH bank transfer: Common for B2B payments due to lower fees.

Credit/debit card: Convenient and fast; fees may be higher.

Check: Still used in some industries, though slower.

Wire transfer: Less common for domestic payments but used sometimes for large amounts.

The easier you make payment, the faster you get paid. A “Pay Now” option and automatic reminders can significantly reduce days outstanding.

6) Send the Invoice and Track Its Status

When you send an invoice, track it through stages like Draft → Sent → Viewed → Paid → Overdue. This is more than a nice dashboard feature—it tells you when to follow up and how to phrase your message.

If your invoice app supports automated reminders, set a schedule aligned to your terms, such as:

Reminder 1: 3 days before due date (friendly heads-up)

Reminder 2: On due date

Reminder 3: 7 days overdue

Keep reminders polite and professional. Most late payments are process-related, not personal.

Sales Tax Basics: When Do You Charge It?

Sales tax in the US is not one simple national rule—sales tax is governed primarily by states (and sometimes local jurisdictions). Whether you should charge sales tax depends on what you sell, where you have tax obligations, and where your client is located.

Here’s the practical way to think about it:

What are you selling? Many services are not taxed in many states, but some states tax certain services. Tangible products are often taxed. Digital products and SaaS may be taxed in some states and not others.

Where do you have an obligation to collect tax? Generally, you collect sales tax where you have sales tax “nexus,” which can come from having a physical presence (like an office or employees) or from economic thresholds in a state based on sales volume or transaction count.

Where is your customer? Sales tax is usually based on the customer’s location (destination-based rules in many places), though rules vary.

Because sales tax can get complicated quickly, many small businesses do one of these:

Work with a tax professional: Especially if you sell products, digital goods, or have customers across many states.

Use tax settings per customer: If your invoicing system supports it, you can set a customer’s tax status and apply the correct rate.

Collect exemption certificates: If your customer is tax-exempt or buying for resale, you may need documentation, depending on the situation.

The key is consistency: if you charge sales tax, show it clearly as a separate line and ensure your totals and credits account for tax correctly.

What Is a Credit in Invoicing?

A “credit” is an accounting mechanism that reduces what a customer owes you now or in the future. In day-to-day invoicing, you’ll hear a few related terms:

Credit memo / credit note: A formal document issued to the customer that reduces their balance. It often references the original invoice and explains the reason.

Account credit / customer balance: A stored credit amount that can be applied to future invoices.

Refund: Returning money to the customer, often after they’ve already paid. A refund may or may not involve a credit note depending on how you manage records.

Discount: A reduction applied at the time of invoicing. A discount is not the same as a credit note; it changes the invoice total immediately rather than after the fact.

Credits are common and normal. They happen when a project changes, when a customer returns products, when you correct a mistake, or when you decide to offer goodwill to preserve a relationship.

When Should You Issue a Credit Note vs. Edit an Invoice?

This is one of the biggest “how do I do it correctly?” questions. The answer depends on whether the invoice has been sent, accepted, or paid—and on your desire to keep a clean audit trail.

Scenario A: Invoice is still a draft

If you haven’t sent the invoice yet, it’s usually best to edit the invoice directly. Fix the line items, correct the quantities, adjust tax, or apply a discount before sending. No credit note needed.

Scenario B: Invoice has been sent but not paid

Many businesses prefer to void or revise the invoice and issue a corrected replacement. Others issue a credit note and then create a new invoice. The best choice depends on how your client’s AP process works. If they already entered the invoice into their system, a credit note plus a new invoice can be cleaner for them, because it preserves references and documents changes.

Scenario C: Invoice has been paid

Once an invoice is paid, editing it can create accounting confusion. In most professional workflows, you issue a credit note to document the change and then either apply it to a future invoice or refund the customer. This maintains an accurate history: original charge, then adjustment.

Scenario D: Partial payment has been made

This is where credit notes shine. You can issue a credit for the disputed or adjusted amount, apply it to the outstanding balance, and keep the payment record intact.

As a general rule: the more “final” the invoice is (sent, booked, paid), the more you want credits and adjustments to be separate documents rather than silent edits.

Common Reasons to Apply Credits

Credits typically fall into a few predictable categories:

Returns or cancellations: A customer returns items or cancels a service period.

Overbilling correction: You accidentally billed too many hours or included the wrong item.

Scope change: The project changed midstream and you’re reducing the fee for removed deliverables.

Service issue or SLA credit: You offer a credit due to downtime, delays, or quality issues.

Goodwill: A one-time credit to preserve the relationship.

Deposit/retainer adjustment: A retainer wasn’t fully used, or you’re applying an existing deposit to a specific invoice.

Whatever the reason, the credit should be documented clearly so your client understands what happened and your records stay consistent.

How to Issue a Credit Note Properly

A credit note should look and behave like an invoice, but in reverse: it reduces the amount owed. For clear communication and record-keeping, include:

Unique credit note number: A separate numbering sequence or a distinguishable prefix (for example, CN-00045).

Credit note date: The date issued.

Client details: Same as an invoice.

Reference to original invoice: Invoice number and date.

Reason for credit: Short, professional explanation (for example, “Adjustment for overbilled hours on INV-00123”).

Itemized credit lines: Ideally mirror the original invoice lines being credited (quantity, rate, tax treatment).

Tax handling: If the original invoice included sales tax, the credit note should also reverse the appropriate tax amount.

Once issued, the credit should appear as a customer balance that can be applied to open invoices or held for future use.

How to Apply Credits to an Invoice

Applying a credit is not the same as issuing it. Issuing creates the credit balance; applying uses it to reduce what the customer owes on a specific invoice.

Here’s the typical workflow:

1) Identify the Open Invoice

Select the unpaid (or partially paid) invoice you want to reduce. Make sure the invoice amount and tax calculations are correct before applying the credit.

2) Choose the Available Credit

Your invoicing system should show available credits for that customer. Pick the relevant credit note(s) and choose how much to apply. If the credit is larger than the invoice balance, you can apply part of it and leave the rest available for later.

3) Confirm the New Balance

After the credit is applied, the invoice should display:

Original total

Credit applied

Remaining balance due

This matters for client clarity. Clients should see exactly why the amount due changed.

4) Send an Updated Statement or Notification

If your client is expecting to pay soon, it helps to notify them that a credit has been applied and the amount due is now lower. Many businesses include this in an email with the updated invoice balance or an account statement.

Handling Credits with Partial Payments

Partial payments are common for large projects. The easiest way to keep clean records is to treat each event as its own transaction: the original invoice, the payment(s), and any credit notes.

Example:

You invoice $5,000. The client pays $2,000. Later, you agree to a $500 reduction due to a removed deliverable.

A clean record would show:

Invoice: $5,000

Payment received: $2,000

Credit note issued and applied: $500

Remaining balance: $2,500

This approach makes it obvious to both you and the client what happened, and it prevents disputes like “We already paid that” or “Where did the new total come from?”

Credits vs. Refunds: Which Should You Do?

Clients sometimes ask for a refund when a credit would be simpler—or they might prefer a credit if they plan to keep working with you. Choosing between a credit and a refund depends on timing, relationship, and practicality.

When a credit is usually best:

If the client has an open invoice you can reduce, or if they will likely purchase again soon. Credits reduce future payment friction and keep cash in your business.

When a refund is usually best:

If the client has paid in full and is not continuing, or if the overpayment is clearly an error that should be corrected quickly. Some clients also have policies requiring refunds rather than carrying credits.

Hybrid approach:

Issue a credit note to document the adjustment, then record a refund payment out to the client. This provides a clear paper trail: the credit shows why money is being returned, and the refund transaction shows that it was returned.

How to Handle Overpayments

Overpayments happen more often than you’d expect, especially when clients pay multiple invoices at once or send round-number payments.

When a client overpays, you typically have two choices:

Leave the overpayment as a credit balance: Apply it to the next invoice.

Refund the overpayment: Return the extra amount promptly.

A professional approach is to message the client with the options, keep the record in your invoicing system, and make sure the customer’s account shows a clear balance. If you choose to hold it as credit, it should be visible on statements and easy to apply later.

Discounts, Credits, and Write-Offs: Don’t Mix Them Up

These three tools reduce what the client pays, but they represent different business realities.

Discount: A price reduction offered at the time of sale (for example, “10% off for new customers”). This appears directly on the invoice.

Credit note: A post-sale adjustment that reduces the client’s balance due to a correction, return, or agreement. This is usually a separate document.

Write-off: An internal decision that you do not expect to collect an amount (for example, a small uncollectible balance). This is often handled in accounting rather than shown as a customer-facing “credit,” depending on your business practices.

Keeping these categories separate improves reporting and helps you understand your margins. Discounts tell you about pricing strategy; credits tell you about errors or customer satisfaction; write-offs tell you about collections risk.

Best Practices for Credit Policies

Credits can be a customer-friendly tool, but without a policy they can also become a source of confusion. Consider setting simple, fair rules and applying them consistently.

Define when credits are issued: For example, billing errors are corrected immediately; service-level credits are evaluated case-by-case; goodwill credits require approval.

Clarify how credits are used: Typically applied to the next invoice or to an open invoice balance.

Decide whether credits expire: Some businesses set expiration periods, but you should ensure this aligns with your industry norms and any applicable consumer protection rules if you sell to consumers. For B2B services, many choose to keep it simple: credits don’t expire, or they expire after a long window and are clearly communicated.

Document everything: Credit notes should reference invoices and include reasons. This protects you and reduces client confusion.

Train your team: If multiple people invoice, make sure everyone uses the same process to avoid inconsistent outcomes.

Applying Credits with Sales Tax: What to Watch

If you collect sales tax, credits should generally reverse the tax proportionately to the credited amount. The goal is for your records to reflect the corrected taxable amount and the corrected tax collected.

Common scenarios:

Full return/refund: Credit reverses the full taxable amount and the full tax.

Partial adjustment: Credit reverses the specific line item amount and the tax associated with that line.

Non-taxable items: Credits on non-taxable lines shouldn’t affect tax totals.

Accurate tax handling is one reason itemized invoices and itemized credits matter. When line items are clear, tax adjustments are straightforward.

Statements and Client Communication

Invoicing isn’t only about the document—it’s also about communication. Many payment delays come from small misunderstandings that a short message can prevent.

When applying a credit, a concise note can save days of back-and-forth. For example:

“We issued a $250 credit related to the adjustment discussed on Jan 18 and applied it to your open invoice INV-00418. The new balance due is $1,750. Thank you!”

If your invoicing system supports account statements, they can be especially useful for clients who receive multiple invoices or have credits and partial payments. A statement shows invoices, payments, credits, and the resulting balance in one place.

Recordkeeping Tips for Clean Books

Even if you outsource bookkeeping, good invoicing hygiene saves money and stress. Here are practical tips that work for most US small businesses:

Keep numbering consistent: Never reuse invoice numbers. Avoid deleting paid invoices; instead issue credits or void documents according to your workflow.

Attach supporting documents: Purchase orders, receipts for reimbursable expenses, and signed approvals can prevent disputes.

Track payment method and date: This matters for reconciliation and for confirming when funds are actually received.

Reconcile regularly: Match invoices to bank deposits or payment processor payouts at least monthly.

Keep notes professional: Credit notes and invoice notes should be factual, not emotional. Assume they might be read by an auditor, a new AP clerk, or a future legal reviewer.

Maintain customer balance accuracy: Credits and overpayments should always reflect correctly on the customer’s account so you don’t accidentally chase a client who has a credit.

Examples: Real-World Credit Scenarios

Examples make the logic much easier. Here are a few common situations and the cleanest way to handle each:

Example 1: You Overbilled Hours on a Paid Invoice

You billed 20 hours but should have billed 18. The invoice was paid.

Best practice: Issue a credit note for 2 hours (and adjust tax if applicable). Then ask the client whether they prefer a refund or to keep it as account credit. If they have ongoing work, applying it to the next invoice is often easiest.

Example 2: Client Returned Part of an Order

The client bought 100 units and returned 15.

Best practice: Issue a credit note for 15 units referencing the original invoice. Apply it to the open balance if unpaid, or leave it as credit/refund if paid.

Example 3: You Offer a Goodwill Credit for a Delay

A milestone was delivered late and you offer $300 off.

Best practice: If the invoice hasn’t been sent, apply a discount directly on the invoice. If it has been sent or paid, issue a credit note with “Goodwill credit due to delivery delay” as the reason and apply it to the next invoice.

Example 4: Retainer Not Fully Used

The client paid a $2,000 retainer. You used $1,600 worth of hours.

Best practice: Apply $1,600 to invoices as you bill, and leave $400 as a credit balance (or refund it if your agreement requires). The key is to keep the retainer and its application visible so the client can follow the math.

Preventing Credit Chaos: A Simple Workflow

If you want an easy system you can run every month without thinking too hard, try this workflow:

1) Invoice with clear, itemized lines.

2) Don’t edit paid invoices. Use credit notes for adjustments after payment.

3) Always link credits to the original invoice.

4) Apply credits to open invoices first. If no open invoices exist, hold as account credit or refund.

5) Send a short message when a credit is issued or applied.

6) Reconcile payments and credits monthly.

This workflow is client-friendly and creates a clean audit trail, which is exactly what you want when tax time rolls around or when you scale and more people touch billing.

Final Checklist: Invoicing and Credits Done Right

Use this checklist as a quick reference:

Invoice checklist:

Unique invoice number, correct client details, invoice date and due date, terms, itemized lines, tax (if applicable), discounts (if applicable), clear total and balance, payment options, references like PO or project name.

Credit checklist:

Unique credit note number, reference to original invoice, clear reason, itemized credited lines, correct tax reversal (if applicable), applied to the right invoice or stored as customer credit, client notified of the updated balance.

When you follow these steps, invoicing becomes a smooth routine instead of a recurring headache. Clients understand what they’re paying for, AP teams can approve invoices quickly, and credits become simple, documented adjustments rather than confusing “handshake math.” With a system like Invoice24 handling templates, tracking, payments, and credit application, you can focus on your work while staying organized, professional, and ready for whatever comes next.