At a high level, a credit can be considered as the inverse to an invoice - it implies that you owe some money to your customer.
Refunds, adjustments, setting of payables against receivables, cashback offers, referral bonuses, and so on can be handled using credits.
Moreover, you can use different types of credit to allow for flexibility in your billing as you start to scale and grow.
There are three types of credits that you can provide your customers with:
Credits created against a paid invoice are referred to as Refundable Credits and will be saved as Credit Notes.
Creating a Refundable Credit Note instead of refunding the money will provide the option of using credits to pay for the invoices in lieu of money. Chargebee can automatically use it for paying new invoices, or you could also use it to set off amount payable against existing unpaid invoices.
You also have the option to refund the unused credit to the customer if they don't want such credits. More on Refundable Credit Notes here.
You can reduce or write off the unpaid amount in an invoice by creating Adjustment Credits. They are also stored as Credit Notes, but are different from Refundable Credits in that they cannot be provided as refunds. More on Adjustment Credit Notes here.
These credits are more like discounts. They are another form of discount and hence are applied before tax, whereas Adjustment and Refundable Credits are handled the same way as payments and hence applied after tax. Referral bonuses, cashback offers, etc. can be supported using Promotional Credits.
Similar to Refundable Credits, they are automatically applied whenever a new invoice is created.
Unlike Refundable or Adjustment Credits, they're not stored as Credit Notes. Instead, they are represented as a running total at the customer level and can easily be increased or decreased using ledger-like entries. More on Promotional Credits here.