Step 1: Turn on or turn off Automatically apply credits
Note: Automatically apply credits only affects the next invoice created. It does not affect existing invoices in Receive Payment.
To turn on the credit note auto-apply feature:
- Go to Settings and select Account and settings.
- Select the Advanced tab.
- Select Edit ✎ in the Automation section.
- Turn on Automatically apply credits if you want to automatically apply credits to customer balances or open invoices. Turn it off if you want to decide which open invoices you want to apply credit notes to.
- Select Save, then Done.
Turn on auto-apply credits if you want to automatically apply credits 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 to the oldest open invoice. If none, QuickBooks applies the credit to the next invoice.
- If the credit matches the amount on the invoice, the credit note and invoice will show as Closed. If the credit is less than the amount of the invoice, the credit note 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 note will show as Unapplied.
- If you create credit 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 notes for customers. Also, if you need to apply specific credit notes 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 note have open balances. They also show as Open on the Customer and Sales transaction pages.
- Select the invoice that has the credits applied.
- Select the blue hyperlink of the credit applied, then select the date. The payment transaction will open.
- Select More, then Delete, then select Yes to confirm.
If you want to transfer credit from one customer to another, create a journal entry, then apply the credit.
Step 2: Create a credit note
- Select + New.
- Select Credit note.
- From the Customer dropdown, select the customer's name.
- Enter the credit note 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 notes as a single line item. - When you're done, select Save and close.
Note: If your customer has returned stock and you wish to update your quantity on hand, input the product as a line item within the credit note.
Step 3: Apply the credit note to an invoice
If you turn on the auto-apply credits, QuickBooks will apply the credit for you. If you turn it off, here's how to manually apply a credit note to an invoice.
- Select + New.
- Select Receive payment.
- From the Customer dropdown, select the customer.
- In the Outstanding Transactions section, select the open invoice you want to apply the credit note to.
- In the Credits section, select the credit notes you want to apply.
Note: You won't see the credits section if you have not created the credit note. - For the open invoice in the Payment column, enter how much of the credit you want to apply.
- Leave the Payment method, Reference no, Deposit to, and Amount received fields blank.
- Fill out the rest of the form, including the Payment date.
- Make sure the total is correct after applying the credit note.
- When you're done, select Save and close.