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Refund your customer for a paid invoice in QuickBooks Online

by Intuit•295• Updated 5 days ago

You can refund a customer who has already paid an invoice with a credit note. Then, you create an expense to issue the refund, and link the two transactions. Use this method for a refund involving a lost package or the Debtors account.

If you want to refund individual items or services, create a refund receipt instead.

You can easily issue credit to your customers in QuickBooks Online. You might want to do this because you need to reduce a customer's invoice for some reason. Or you might want to give a customer credit because they are a good customer. Note that the difference between credit and a refund is a refund happens when you need to send money back to a customer. A credit is when you want to reduce what they owe you - either now or in the future. To give customers credit, you’ll create a credit note. Let’s go over how to create a credit note, send it to a customer, and then apply that credit to an invoice. To start, select New and Credit note (beat) or Give credit depending on your view. Select the customer you want to give credit to. Then select the products and services you want to give them credit for. Then the amount of the credit you want to give them. You can also select + Add new and create a credit item that doesn't have a specific price. Any time you add it to a credit note, you can fill in the amount you want to credit your customer's account. If you want to send a copy of the credit to your customer select save and send. Otherwise, you can select another save option so QuickBooks records the credit. We’ll select save and send for this option. You see the PDF version of the credit note that your customer will receive here. If everything looks good select save and close and your credit note is on its way. Now let’s go over how to apply a credit note to an invoice. If your customer already has an open invoice with you then this happens automatically. To see this go to your customer list. Find your customer and the open invoice. Select it and you can see QuickBooks has applied the credit note to the open invoice. What happened is QuickBooks automatically created this Payment transaction here to apply the credit note to the oldest open invoice. However, if your customer has multiple open invoices and you want to apply this credit to a different one, just select the payment. Then select the invoice you want to apply it to and enter the amount. Make sure this matches the amount of the credit note. Once everything looks good. Save...and then confirm. If your customer doesn’t have an open invoice then the credit will automatically be applied to their next invoice. Let’s take a look. Just create a credit note for your customer. Then when you create a new invoice for your customer (beat) you will see that QuickBooks has applied the credit to your new invoice. That’s it. Now you can create credit notes for your own customers.

What you’ll need

The original paid transaction (invoice).
The customer's preferred payment method.
The bank account you are refunding from.

Create a credit note

First, create a credit note to record the credit on the customer's account.

Select + New or + Create.
Select Credit note.
From the Customer ▼ dropdown, select the appropriate customer.
Enter the Credit Note Date, Product/Service, Amount, and VAT.
Note: If you are refunding an stock item, QuickBooks adds it back to your stock. If the item is defective or you don't want to add it back, you will need to make an stock adjustment.
Select Save and close.

Create the refund expense

Next, create an expense to record the money you are refunding to the customer.

Select + New or + Create.
Select Expense.
From the Payee ▼ dropdown, select the customer you are refunding.
From the Payment account ▼ dropdown, select the bank account the money is being refunded from.
In the Category column, select the Debtors.
Note: If this is your first time adding a payment to Debtors, you may have to select + Add new and add Debtors if you do not see it in the dropdown.
In the Amount field, enter the total amount of the refund.
If you collect sales tax, select the appropriate Tax option.
Select Save.

Link the refund to the credit note

Finally, link the credit note and the expense to show the credit has been refunded.

Select + New or + Create.
Select Receive payment.
From the Customer ▼ dropdown, select the same customer.
Fill in the Payment method and Deposit To fields.
In the Outstanding Transactions section, select the checkbox for the Expense you created if it is not already selected.
In the Credits section, select the checkbox for the Credit Note you created if it is not already selected.
Make sure the balance is GBP £0, as the credit note and expense will cancel each other out.
Select Save and close.

Results

After linking the transactions, your customer's account will show the credit note as paid, and the refund expense will be recorded. Your accounts receivable and bank account balances will be correct.

Next step

If you use online banking, go to Bank transactions to find and match the refund record when it appears in your bank feed.

We're here to help
If you have questions about providing refunds or credit notes, or need help refunding a customer or supplier, let us know. Sign in to QuickBooks and start a discussion with a qualified QuickBooks Online expert in the community.