Apply or refund a credit note
Create a credit note from an invoice, use its credit against the customer's invoices or refund it, and see what it changes for balances, statuses and reports.
A credit note is credit you owe a customer: for goods they returned, a price you corrected, or a service you did not deliver. Once it is issued you decide what happens to that credit. Apply it to the customer's invoices, so they owe less, or refund it, by paying the money back. You can do both, in any mix, until none is left.
Before you start#
Applying and refunding credit need the payments permission, which owners, admins and accountants have.
- The credit note must be issued. A draft's credit cannot be used yet.
- To apply it to invoices, the credit note must name a customer (choose one in the editor), and the invoices must be that customer's, in the same currency. Credit never moves between customers or currencies.
- An invoice can take credit once it is issued and while something is still left to collect on it.
Create a credit note from an invoice#
The quickest way to credit a customer is from the invoice itself. It works on any issued invoice, paid or not: a paid invoice can still need a credit note and a refund.
- Open the invoice and choose Create Credit Note.
- Choose the lines to credit and how many of each. Every line starts ticked, at the quantity still left to credit; Clear unticks them all.
- Enter the Reason for credit. It is printed on the credit note.
- Choose Create draft credit note. The draft opens in the editor.
- Check it, then Issue it. It gets its own credit-note number.
The draft copies each line exactly as the invoice recorded it: product, description, unit, price, discount and tax, at the tax rate the invoice was issued with even if your rate has changed since. Its Reference is the invoice's number, and the two documents are linked: the invoice lists it under Related documents as Credited by.
Creating a credit note changes nothing on the invoice. Its balance and status stay exactly as they were until you apply the credit (below), so creating, issuing, applying and refunding are four separate steps.
- An invoice is never credited for more than it billed, whatever has been paid. Each line can be credited up to its quantity, counting every credit note already made from it, drafts included, so two drafts cannot credit the same items. Discard a draft you no longer need, or void an issued one, to free its items.
- Shipping and other fixed charges are included only when you credit the whole invoice. Add them in the editor otherwise.
- If the draft is edited to credit more than the invoice billed, or moved to another customer or currency, it cannot be issued until that is put right.
Once it is issued, its Credit card offers the next step: Apply to the invoice (when it still has something to collect), Record refund (typically when the invoice was already paid), or simply keep the credit for the customer's next invoice.
What a credit note does to your figures#
Issuing a credit note reduces your sales on the credit note's own date, whether or not its credit is used yet. In the reports it appears under Credit notes, and Net sales is sales excluding tax minus credit notes.
Its credit then sits on the credit note as Credit left until you use it. The customer's page shows it as Unused credit.
Apply credit from the credit note#
- Open the credit note. The Credit card shows four figures: the credit note total, what has been applied to invoices, what has been refunded, and the credit left.
- Choose Apply to invoices. The customer's open invoices in this currency are listed, soonest due first, each with what it still has to collect.
- Enter how much to apply to each invoice. Apply oldest first fills the amounts in for you, oldest invoice first, until the credit runs out; Max fills one row. Change any amount you like.
- Check the Date applied. It defaults to today, and cannot be in the future or before either document was issued.
- Choose Apply. The button names the total.
If the credit note names an invoice in its Reference (for example the invoice it corrects), that invoice is filled in first when the dialog opens.
Apply credit from the invoice#
When the customer has unused credit in the invoice's currency, the invoice's Balance card says how much, on how many credit notes. Choose Apply credit, enter how much to take from each credit note (or Use oldest credit first), and confirm. It is the same as applying from the credit note, from the other end.
What applying credit changes#
| After applying credit | |
|---|---|
| Invoice: Credits applied | Goes up by the amount. |
| Invoice: Still collectible | Goes down by the amount, exactly as a payment would. |
| Invoice: Payments received | Unchanged. Credit is not money received. |
| Credit note: Credit left | Goes down by the amount. |
An invoice settled entirely by credit is Paid, marked Paid with credit; settled by payments and credit together, it is marked Part paid, part credited. Payment reminders follow the reduced balance and stop once nothing is left.
The printed invoice, its PDF and the customer's link show Credits Applied as its own line between Amount Paid and Balance Due, so Amount Paid is always money that actually arrived.
Refund credit#
- On the credit note, choose Record refund.
- Enter the Amount refunded. It starts at all the credit left; enter less for part.
- Set the Refund date, how it was paid in Paid by, and a Reference such as the transfer number. Notes are internal.
- Choose Record refund.
A refund is money out. It lowers the credit left and touches no invoice. It is not a payment received, and it does not reduce sales a second time: the credit note already did that.
When the credit is used up#
When nothing is left, applied or refunded, the credit note's status becomes Closed. The printed credit note shows Credits Applied, Refunded and Credits Remaining.
Take credit back, or correct a refund#
- Remove applied credit: in the credit note's Applied to invoices list (or the invoice's Credits applied list), choose the remove button beside the entry. The invoice owes that amount again and the credit note has it to use again. A closed credit note reopens.
- Edit or delete a refund: use the menu beside it in the credit note's Refunds list.
Every change is kept in both documents' activity.
What stays protected#
| You try to | What happens |
|---|---|
| Void or discard an invoice that has credit applied | Refused. Remove the credit first; it goes back to the credit note. |
| Void or discard a credit note that was applied or refunded | Refused. Remove those first. |
| Lower an issued invoice's total below what payments, write-offs and credit cover | Refused. Remove some of the credit first. |
| Lower an issued credit note's total below what was applied and refunded | Refused. |
| Change the customer or currency of either while credit links them | Refused. Credit stays with the customer it was given to. |
| Record a payment larger than what credit left to collect | Refused, so the same amount is never counted as both credit and cash. |
In the reports#
- Sales by customer and Sales by salesperson: Credit notes, Net sales, Credits applied and Refunds (show it from the columns menu). Outstanding now already reflects applied credit. A credit note counts toward the salesperson of the invoice its Reference names, otherwise Unassigned.
- Sales by item: Credited quantity and Credit notes for the items on credit-note lines, and Net sales after them.
- Invoices: Credits applied on each invoice.
- Credit notes: every credit note issued in the period, with what was applied, refunded and is left.
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