What is a credit memo?
Credit memos are documents that reduce the amount due of an invoice. The difference between issuing a credit memo and editing an existing invoice is that a credit memo doesn’t void or replace the original invoice. Some examples of when you might use a credit memo include:
You under-delivered on your invoice (e.g. low inventory, spoiled goods, or issues with delivery)
You’d like to show goodwill to your customers (e.g. loyalty reward, or discounts)
Your customer overpays an invoice (e.g. a double payment)
You overbilled a customer (e.g. duplicate invoice sent, or data entry error on an invoice)
A credit note reduces the amount due without recording any payment. However, if a credit note reduces the balance of an open invoice to 0, the invoice status changes to paid.
How to create credit memos
There are several ways to create credit memos:
Navigate to Settings and select Credit Memos.
Navigate to Invoices, and select Credit Memos.
In the Ledger, select the “New” button, and choose Credit Memos
Navigate to Customers, select a customer you’d like to issue a credit memo to, then select “Add Credit Memo”.
When creating a new credit memo:
Select the customer you’d want to issue a credit memo to
Select the entity you’re issuing the credit memo from
Enter the amount you’d want to credit
Enter the date for the credit memo
Optionally, add a description as the reason for the credit memo
Tag the credit memo with the category, and enterprise you’d want to credit from
After creating the credit memo, you can download the credit memo by clicking the download icon, or through the more menu. Additionally, there’s an option to print the credit memo from there.
View credit memos balances
There are several ways to see your credit memos balance at any given time:
Navigate to Settings and select Credit Memos. The Open tab will list all your open credit memos, and you’ll find the total balance of your open credit memos next to the New button.
Navigate to Balances and select Credit Memos under Accrued Assets.
You can also view the credit memo balance per customer by navigating to the specific contact, and viewing their details.
Using credit memos
On the open invoice, select match payment.
If the customer has open credit memos, the match payment screen will show the credit memos and auto apply them as a payment. You can choose to not apply the credit memos by unchecking them.
Applied credit memos
Applied credit memos can be found in the Credit Memos page, under the “Applied” tab.
Additionally, invoices with applied credit memos will show credit memos as part of the payments matched to them.
What to do if a customer overpays or prepays?
There are times when a customer accidentally or intentionally overpays an invoice or prepayments are part of your business model. To account for these transactions, you can issue your customers a credit memo to document receipt of the payment and apply it to a future invoice.
Create Overpayment and Prepayment categories
Before you’re able to tag incoming overpayment and prepayment transactions, you’ll need to create either the “Overpayments” and/or the “CSA Prepayments” in your Settings:
Navigate to Settings, and select Categories
Type and select the “Overpayments” or the “CSA Prepayment” category depending on your needs. This will pre fill the “Parent Category” information.
Click “Save”, to save your new categories.
Tag the transactions
On the incoming payment information, tag the transaction as a “CSA Prepayment” or “Overpayment”.
Create a credit memo
Create a credit memo for the same amount for the customer
Apply the credit memo
Apply the credit memo to a future invoice by matching it as a payment after creating the invoice.
Cancel a credit memo
To cancel a credit memo, click on the more menu icon on an open credit memo, and select cancel credit memo. Note that only open credit memos can be canceled.
Any canceled credit memos can be found in the “Canceled” tab. This tab can only be seen if you have canceled credit memos.