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Create and apply credit memos or delayed credits in QuickBooks Online

SOLVEDby QuickBooks543Updated 1 week ago

Learn how and when to give a credit memo or delayed credit to customers.

Instead of a refund, some customers prefer getting a credit they can use to reduce the balance on their next invoice.

There are a few ways to handle credits in QuickBooks. You can create a credit memo to immediately reduce a customer's current balance. Or you can enter a delayed credit so they can use it in the future.

Here's more about the difference and how to apply them to customer transactions.

Note: If your customer simply wants a refund, here's how to return your customer's payment.

In this article, you'll learn how to:



Learn the differences between credit memos and delayed credits

In QuickBooks, you can give credit using a credit memo or delayed credit. Here are the key differences:

Credit memo

  • If your customer wants to immediately reduce their current open balance, use a credit memo.
  • Your customer can use their credit memo as payment for an invoice. They can use all of their credit memos or a portion of it.
  • You can apply a credit memo when recording payment for a customer’s invoice.
  • Credit memos impact sales reports, even if you don't apply them to invoices.

Delayed credit

  • If you want to track acustomer's credit for future use, and they don't want it to immediately affect their current open balance, use a delayed credit.
  • Your customer can use their delayed credit to reduce the balance of an invoice.
  • You can add delayed credits to future invoices as a line item.
  • Unlike credit memos, delayed credits don't impact sales reports until you apply them to invoices.


Create and apply a credit memo

Step 1: Turn on the credit memo auto-apply feature

If you haven't already, you can tell QuickBooks to automatically apply credit memos to customers' balances or open invoices. To turn on the credit memo auto-apply feature:

  1. Go to Settings and select Account and settings.
  2. Select the Advanced tab.
  3. Select Edit ✎ in the Automation section.
  4. Select Automatically apply credits.
  5. Select Save, then Done.

Tip: You can turn off this feature if you want to decide which open invoices you want to apply credit memos to.

Turn on auto-apply credits if you want to automatically apply credit memos to the oldest open invoices for the same customer. Here’s what'll happen if it’s on:

  • If you have older open invoices, QuickBooks applies the credit memo to the oldest open invoice. If none, QuickBooks applies the credit memo to the next invoice. 
  • If the credit matches the amount on the invoice, the credit memo and invoice will show as Closed. If the credit is less than the amount of the invoice, the credit memo will show as Closed, and the invoice will show as Partial.
  • If the credit is more than the amount of the oldest open invoice, QuickBooks applies the remainder to the next oldest open invoice. If there’s no more open invoices, the status of the credit memo will show as Unapplied.
  • If you create a credit memo and your customer owes nothing, they’ll have a negative balance.

Turn off auto-apply credits if you create a lot of invoices and credit memos for customers. Also, if you need to apply specific credit memos to specific invoices. Here’s what'll happen if it’s off:

  • When you enter a credit, QuickBooks won’t apply it to any open invoices.
  • When you receive a customer payment using Receive payment, it has a Credits section (if the customer has credits). You can then choose when to apply credits and to which invoices.
  • If you don’t link any credits, the Customer Balance Detail report shows that both the invoice and the credit memo have open balances. They also show as Open on the Customer and Sales transaction pages.
  1. Select the invoice that has the credit memo applied. 
  2. Select the blue hyperlink of the credit memo applied, then select the date. The payment transaction will open.
  3. Select More, then select Delete.

If you want to transfer credit from one customer to another, create a journal entry, then apply the credit.

Step 2: Create a credit memo

  1. Select + New.
  2. Select Credit memo.
  3. From the Customer dropdown, select the customer's name.
  4. Enter the credit memo details, such as the date and the amount.
    Tip: You can create a custom credit service item so you can quickly add it to credit memos as a single line item.
  5. When you're done, select Save and close.

Note: If your customer has returned inventory and you wish to update your quantity on hand, input the product as a line item within the credit memo.

Step 3: Apply the credit memo to an invoice

If you turned on the credit memo auto-apply feature, QuickBooks handles this for you. Your work is done and QuickBooks applied the credit for you.

Here's how to manually apply a credit memo to an open invoice:

  1. Select + New.
  2. Select Receive payment.
  3. From the Customer dropdown, select the customer.
  4. From the Outstanding Transactions section, select the open invoice you want to apply the credit memo to.
  5. From the Credits section, select the credit memos you want to apply.
    Note: You will not be able to see the credits section if you have not created the credit memo.
  6. For the open invoice in the Payment column, enter how much of the credit you want to apply.
  7. Leave the Payment method, Reference no, Deposit to, and Amount received fields blank.
  8. Fill out the rest of the form, including the Payment date.
  9. Make sure the total is correct after applying the credit memo.
  10. When you're done, select Save and close.


Create and apply a delayed credit

Step 1: Create a delayed credit

  1. Select + New.
  2. Select Delayed credit.
  3. From the Customer dropdown, select the customer's name.
  4. Enter the details, such as the date and the amount. Tip: You can create a custom credit service item so you can quickly add it to delayed credits as a single line item.
  5. When you're done, select Save and close.

This saves the delayed credit. You can choose to apply it the next time you invoice the customer.

Step 2: Apply the delayed credit to an invoice

Keep in mind that adding a delayed credit to an invoice from a prior accounting period will affect that period's balances.

  1. Select + New.
  2. Select Invoice.
  3. In the Customer dropdown, select the customer. This opens a window with all open transactions for the customer, including invoices and delayed credits.
    Note: If you don't see this, select the small arrow next to the invoice Balance Due.
  4. Find the delayed credit and select Add. This adds the credit as a line item to the invoice.
  5. Fill out the rest of the invoice as needed.
  6. When you're done, select Save and close.


Credit memo customization

Any customizations applied to the Standard template will be picked up by the credit memo. To customize a credit memo, edit the Standard template according to your needs.

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