China supplier credit notes: reconcile refunds
Keep the original invoice and link it to the written settlement, supplier credit note, bank receipt and replacement stock records. Separate money promised from money received, and ask your accountant and customs broker to review the tax treatment before closing the claim. Share this evidence pack with Cambridge China Bridge.
Start with the original invoice and claim
Keep the original invoice unchanged in the claim file. Add the purchase order, payment records, affected product lines, batch references, defect evidence and supplier correspondence. Identify the invoicing seller and the party that agreed the settlement; flag any mismatch before posting a credit.
This guide covers reconciliation after a settlement is agreed. For documenting faults and considering rejection, use goods arrived faulty. Record what happened to the affected stock: retained, repaired, returned, destroyed or awaiting a decision.
Write down exactly what the settlement covers
Ask for a written breakdown separating a purchase-price reduction, repair reimbursement, cash refund, credit against a future order and replacement goods. State the currency, affected invoice lines, agreed quantities, payment destination and who covers freight or other costs. Clarify whether replacements supplement the refund or settle the same part of the claim.
Ask the supplier's credit note to identify the original invoice, reason, currency and amount. Keep it alongside the settlement rather than replacing the invoice. If a future-order credit is offered, record how it will be applied and what happens if you place no further order.
Match the credit to cash actually received
Reconcile the original invoice against payments already made, agreed credits and any balance still payable. Separately track the agreed refund, the amount received and the amount outstanding. A credit note or transfer screenshot does not establish that your bank has received the money.
Match the bank receipt to the supplier's remittance reference. Show the settlement in its agreed currency and the actual sterling receipt separately, with bank charges and exchange differences identified for your accountant. If the receipt is short, ask whether the difference is a fee, a partial payment or a disputed amount; keep it open until explained.
Track replacement stock separately
Link replacements to the original claim, but give the shipment its own packing, transport, receipt and inspection records. Record what arrived and what passed inspection. Keep rejected original stock separate from usable replacements, and do not count a promise to ship as stock received.
Give the broker the original invoice and settlement before replacements leave China. Ask them to review the customs value rather than treating a free replacement as having no value. HMRC says adjustment of the original shipment's customs value is considered separately from later replacements fulfilling the original transaction. See declaring free samples and replacements.
Get accountant and broker review before closure
Send your accountant the invoice, settlement, credit note, bank evidence and stock movements. Ask them to confirm the purchase adjustment, any separate reimbursement, exchange differences, stock treatment and VAT treatment. HMRC says VAT liability depends on the underlying supply position, rather than simply issuing or receiving a credit note. Ask the accountant to distinguish a UK seller's invoice from a direct factory purchase and import VAT records.
Send the broker the same pack with the import declaration and ask whether any amendment or repayment route applies. Use checking and correcting an import declaration and valuing unsold imported stock for the related reviews. Close only when money, credits, stock and review actions are reconciled, or record the unresolved balance and its owner explicitly.
Frequently asked questions
Is a supplier credit note proof of a refund?
No. Match the credit note to the agreed settlement and confirm the receipt in your bank account. Keep an unpaid refund or unused future-order credit visible as outstanding.
Should I replace the original invoice with the credit note?
Keep both linked in the claim file. Ask your accountant how to post the adjustment without losing the trail from the original purchase to the settlement.
How do I reconcile a refund plus replacement goods?
Break the settlement into cash, credits and replacements. Identify what each covers, match cash to bank receipts and replacements to inspected stock, and check that the same loss has not been counted twice.
Does a credit note automatically reduce import tax?
Do not assume it does. Ask the broker to review the original declaration and settlement, and the accountant to review VAT. Keep any tax adjustment separate from the supplier refund.