How can I apply a (Paypal payment) or any bank record payment to an outstanding Credit Memo for that customer?

Hi there, @AbroadWorks. I can help you with applying a PayPal or bank payment to an outstanding customer's credit memo.

Usually, you can apply a credit memo to an existing invoice in QuickBooks Online (QBO) by receiving a payment. If you have downloaded bank transactions, you can link the credit first into your invoices, then match the invoice to bank entry.

1. Sign in to your QBO account.
2. Go to the Gear icon, then click on Receive Payment.
3. Select the customer name from the Customer field.
4. Mark the outstanding invoice and the customer credit.
5. Click on Save and Close.

Once done, go to the Banking page and match the deposit to your invoice.

1. Click on Banking at the left pane, then go to the Banking page.
2. Select your bank, then locate the payment from the For Review section.
3. Tap on Match under Action. Or, select Find match, then Find other matches to see another possible match.
4. Follow the on-screen pop-ups to complete the process.

You can learn more about creating and applying credit memos in QBO from this article: Create and apply credit memos or delayed credits in QuickBooks Online.

Aside from matching your bank entries to the manually added ones, you can get more hints about how you can review, add, or exclude them from your records from here: Categorize and match online bank transactions in QuickBooks Online.

Please let me know if you have any other follow-up questions about your bank payments and customer credit. I'll be right here to provide additional assistance. Have a good one!

Thank you for your quick reply. I should have been more clear. The Payment is a return of the Credit Memo and is not an invoice for anything tangible. We keep security deposits for our customers and this is a return of that security deposit which was paid back out to them via Paypal. Is the process still the same? Thanks. 

Hello, AbroadWorks.

Thanks for the clarifications! I'll take it from here and help you record the security deposit return. 

The process is different since you're returning the security deposit. You would want to use either an expense or a check transaction indicating the return. This is mapped to the Accounts Receivable account, so it'll affect the credit memo transaction.

Then, link the expense and the credit memo together to close out the transaction. Here are the detailed steps: 

Creating the Expense transaction:

1. Click the + New button. 
2. Select either Expense or Check. 
3. Under Payee, select your customer's profile. 
4. Set the Payment date and Ref no. 
5. Under Payment method, select PayPal (or add it to the list).
6. Select Accounts Receivable under CATEGORY.
7. Enter the Description, the Amount returned, and memo.
8. Once done, click Save and close. 

Linking the credit memo and the expense transactions: 

1. Go to the + New menu again.
2. Select Receive payments.
3. Add the customer's profile under Customer.
4. Check the Expense transaction under Outstanding Transactions
5. Do the same for the open credit memo under Credits
6. Add other important information.
7. Once done, click Save and close. 

This will close out the credit memo under your customer's profile. 

After linking the two transactions, go to your PayPal bank feeds and match the record in QuickBooks.

Ready to reconcile your transactions in QuickBooks? We have an article to help you with the process: Reconcile an account in QuickBooks Online.

Need help recording other transactions? Or do you have any concerns on other areas in QuickBooks? Let me know the details and I'll definitely help you out.