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Create and apply credit memos or delayed credits in QuickBooks Online

by Intuit•1046• Updated 1 week 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.

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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.

You can use QuickBooks Online to issue credits to your customers. You might want to do this to reduce what a customer owes on an invoice, or to write off the balance of an invoice you’ll never receive, like bad debt. This video will go over how to record a credit memo, send it to a customer, and then apply it to an invoice.

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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.