Create and apply credit memos or delayed credits in QuickBooks Online

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

Some customers prefer a credit memo over a refund. This way, they can use the credit to reduce the balance on their next invoice.

You have a couple of options for credit memos in QuickBooks. You can create a credit memo to immediately reduce a customer's current balance. Or you can create a delayed credit that they can use later.

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:

• Know the differences between credit memos and delayed credits
• Create and apply a credit memo
  • Turn on or off automatically apply credits
  • Create a credit memo
  • Apply the credit memo to an invoice
• Create and apply a delayed credit
  • Create a delayed credit
  • Apply the delayed credit to an invoice
• Credit memo customization

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

• A credit memo immediately reduces an open balance.
• Your customer can apply their credit memo to their 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 a customer'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 or turn off Automatically apply credits

Note: Automatically apply credits only affects the next invoice created. It doesn't affect existing invoices in Receive payment.

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. 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 memos to.
5. Select Save, then Done.

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 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 memo to an invoice.

1. Select + New.
2. Select Receive payment.
3. From the Customer dropdown, select the customer.
4. In the Outstanding Transactions section, select the open invoice you want to apply the credit memo to.
5. 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.
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.