A credit note is a monetary instrument a possessor can exchange for goods of equal value, from the person or organisation who issued the credit note. The credit note usually cannot be exchanged for cash.
A credit note is essentially a negative invoice, and is used to rectify errors in an already-issued sales invoice or receipt. If someone has already paid money for an item or service he has either not received or which was flawed, a credit note acknowledges that he is owed items or services from the individual or organisation in the amount already paid.
A credit note can be issued in a variety of situations. The type of credit note most people will encounter is one issued by a shop. If a buyer purchases a sweater from Generic High Street Chain and then returns it to the shop because it is flawed in some way, the shop might refuse to refund her money, but it will give her a credit note for the amount she already paid instead. Coffee cards and gift cards are also varieties of a credit note.
Other types of credit note function according to the same principle. If someone in business were to order 10 flat-screen monitors from his supplier but the supplier only has nine in stock, the supplier might offer a credit note to the buyer. That note would be to the value of one flat-screen monitor, and could be used to purchase either another flat-screen monitor or a variety of smaller items.
The primary benefit of a credit note is to the retailer or the organisation that issues it. It ensures that the money spent stays with the store, rather than being taken to a competitor, and also serves to create good will with the customer.
Loyalty cards are marketing tools that work according to the same theory as a credit note. The "credit" spent by the customer is the loyalty and frequency of her business, and those points can be redeemed against rewards or goods purchased in the issuing company's store.
A credit note can generally only be exchanged for goods from a specific vendor. Therefore, if the vendor disappears, the value of the credit note vanishes, too. (This is less likely to be an issue with larger businesses or chains, but it can happen.)
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