Credit memos

By the end of this article you will know when a credit memo is the right document, and how to take one from draft to applied without losing track of a dollar.

A credit memo reduces what a customer was billed. It is the answer to “we charged too much”, “that service did not happen” or “we want to make this right” — after the invoice was sent — without touching the invoice itself and without handing back cash. The credit sits on the customer’s account until you apply it to an invoice or, if nothing is owed, refund it.

Create and issue

1. Open Billing › Credit Memos and click Add Credit Memo.
2. Choose the Customer. Optionally pick the Original invoice the credit corrects — it links the two and helps later reading.
3. Pick the Reason: Billing error, Goodwill, Return, Price adjustment or Other.
4. Check Also credit the tax. The app sets it from the reason — on for a billing error, a return and a price adjustment, because part of the sale did not happen and the tax on it is not owed; off for goodwill and for Other, because the sale did happen and the tax stands. Change it if your case is different; the memo records that you did.
5. Add the Line items — what is being credited, quantity and price — and any Notes for the customer or Internal notes.
6. Save draft. A draft has no number, can be edited freely, and can be deleted from the list with Delete draft.
7. Open it and click Issue. Issuing assigns the permanent number and books the credit. From here it can be voided but not edited or deleted.

Email to customer sends the issued memo as a PDF, in the customer’s preferred language; Download PDF gives you the same file.

Use the credit

• Apply to invoice — pick one of the customer’s invoices with a balance and the amount to put against it, up to the smaller of the invoice’s balance and the memo’s Remaining credit. The invoice’s Balance Due drops at once. Apply the rest to another invoice later; the status reads Partially applied until it is all used, then Applied.
• Undo reverses one application: the credit returns to the memo and the invoice balance goes back up.
• Refund as cash hands the whole credit back as money instead. It is only offered while none of it has been applied — undo any applications first — and it cannot be undone. Like a cash refund on a payment, it is a record: you give the customer the money, the app writes it down.
• Void cancels an issued memo: every application is reversed, the credit stops counting, and the document stays on record. This cannot be undone either.

Good to know

• Credit memo or refund? A refund gives back money the customer paid and leaves the invoice as it was. A credit memo changes what they owed. If the invoice is paid and the customer wants money, a credit memo refunded as cash and a refund reach the same place — the credit memo is the one that also corrects the sale (and the tax) in your books.
• Filter and sort. The list filters by Status — Draft, Issued, Partially applied, Applied, Refunded, Voided — and sorts by number, date, status or total.
• Your books record the credit when it is issued, and the tax reversal only when Also credit the tax is on. Over-crediting tax is a recoverable bookkeeping error; under-remitting it is a liability, which is why Other starts with it off.
• Who. Creating, issuing, applying, refunding and voiding need billing edit access — Admin and Accounting. Anyone with billing access can read them.

Related

• Invoices: how one is created and when it is sent
• Refund a payment
• Collect the balance on a finished job