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Create and apply credit memos or delayed credits in QuickBooks Online

by Intuit•992• Updated about 16 hours ago

Send customers credit memos to reduce how much they owe you after a return, discount, or billing error. This keeps the customer’s accounts receivable balance correct, but doesn’t affect your original invoice records.

You can send a customer a credit memo to reduce their current balance right away, or send them a delayed credit they can use later.

For a better experience, open this article in QuickBooks Online. Launch side-by-side view

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, either partially or in full.
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 a customer's credit for future use, without it immediately affecting 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 they’re applied to invoices.

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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 memo. Let’s go over how to create a credit memo, send it to a customer, and then apply that credit to an invoice. To start, select New and Credit memo (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 memo, 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 memo that your customer will receive here. If everything looks good select save and close and your credit memo is on its way. Now let’s go over how to apply a credit memo 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 memo to the open invoice. What happened is QuickBooks automatically created this Payment transaction here to apply the credit memo 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 memo. 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 memo 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 memos for your own customers.

What you’ll need

An active QuickBooks Online account.
The customer's name and the specific transaction details (date, items, and amount).

Optional: If you want QuickBooks to automatically apply credits to the oldest unpaid invoice, turn on the Automatically apply credits setting.

Turn automatically apply credits on or off

Go to Settings ⚙ and select Account and settings.
Select the Advanced tab.
Select Edit ✎ in the Automation section.
Turn Automatically apply credits on or off.
Select Save, then Done.

How does the automatically apply credits setting work?

When you turn this setting on, QuickBooks applies the credit to the oldest unpaid invoice and if the credit matches or exceeds the remaining balance, closes the invoice. Any additional credit is applied to the next oldest unpaid invoice until all unpaid invoices are paid.

If there are no unpaid invoices, the credit memo’s status is Unapplied, and your customer’s balance is negative.

When you turn this setting off, you’ll see a Credits section when you receive a customer payment using Receive payment. Choose when to apply credits and to which invoices. If you don’t see this section, the customer may not have any credits.If you don’t apply 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.

Step 1: Create a credit memo or delayed credit

Select + Create.
Select Credit memo or Delayed credit.
Choose the customer from the Customer ▼ dropdown.
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 as a single line item.
Select Save and close.

Step 2: Apply your credit to an invoice

Once you’ve created a credit memo or delayed credit, you’ll have to apply it to an invoice.

Apply credit memos

If you’ve turned on auto-applying credits, QuickBooks applies the credit for you. If not, here’s how to apply one or more manually.

Select + Create.
Select Receive payment.
From the Customer ▼ dropdown, select the customer.
In the Outstanding Transactions section, select the invoice you’re applying the memo(s) to.
In the Credits section, select the credit memos you want to apply.
Note: You won't see the credits section if you have not created the credit memo.
In the Payment column of the unpaid invoice, enter how much credit you want to apply.
Leave Payment method, Reference no, Deposit to, and Amount received blank.
Fill out the rest of the form, including the Payment date.
Make sure the total is correct after applying the credit memo.
When you're done, select Record and close.

Apply delayed credits

Remember, adding a delayed credit to an invoice from a previous accounting period will affect the balances for that period.

Select + Create.
Select Invoice.
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.
Find the delayed credit and select Add. This adds the credit as a line item to the invoice.
Fill out the rest of the invoice as needed.
When you're done, select Save and close.

Next steps

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

Remove auto-applied credits from an invoice

If your credits were applied to an invoice automatically by mistake, you can remove them.

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.
Select Yes to confirm.