I would like to know how to handle a customer credit that is created from partial prepayment a customer has done on an invoice?

Hi C.,

Welcome to the QuickBooks Community! I'll help you with handling your daughter's transactions.

Instead of creating a credit note, an alternative approach is to use a Receive Payment transaction to handle the customer credit. This way, the amount will be recorded as a credit that can be applied towards future invoices for the customer. However, it's important to note that you'll need to turn off the Automatically apply credits feature in QuickBooks Online to ensure more control over applying the credit to specific invoices.

To turn off the automatic application of credits:

1. Click on the Gear icon and choose Accounts and settings.
2. Choose the Advanced tab and go to the Automation section.
3. Turn this off: Automatically apply credits.
4. Click Save and then Done.

When you record a Receive payment transaction, just enter the amount your received in the Amount received  filed.

To apply the payment to an invoice, just open the invoice and click Receive payment. Then, select the payment in the Credits section. If you've accidentally applied the payment to another invoice, just open the payment transaction and uncheck the invoice.

Please don't hesitate to go back to this thread if you have other questions in mind. Take care and have a good one!

Hi,

Thank you very much for the response, but you did not fully understand the situation (my bad...)

1.  The sales orders (of non-inventory items) are used go capture what is purchased and the advanced payment on the item.  Usually, the advanced payment (or layaway) amounts for 50% of the sales value.

2.  When the items arrive at the distribution center, the customer is contacted and requested a payment of the remainder of the invoice.

3.  When the customer payment is received the item is delivered to their domicile.

4.  If for any reason the item that was purchased (recorded on the sales invoice that is partially paid) is not fulfilled, the customer has 2 choices:

a.  Get reimbursed for the amount that had been paid,

b.  Be credited (for future purchases, or be applied to other open invoices they might have).

The issue has nothing to do with being able to correctly issue a customer credit, a refund receipt or even a delayed credit.  I that to do with the way the original invoice that had a credit amount gets to be "closed" so it doesn't show up as an open invoice (unpaid), when in reality one only wants to get the amount that had been paid in that invoice and apply it to another open invoice (of the same customer) that might be of larger or smaller value.

The aforementioned situation might still yield a partially paid invoice, that is normal in any business.

I hope I explained the situation in a better way.

All the best,

C.

Thank you for clarifying your concern, C. Let's work together to resolve it.

In QuickBooks Online (QBO), you can use the partially paid invoice as credit if it cannot be fulfilled. Afterward, you can delete or void the invoice to make the payment available for other purposes.

Here's how:

1. Go to the + New button.
2. Under Customer, select Credit memo.
   
3. Choose the customer's name from the Customer drop-down arrow, then enter the credit memo details, such as the date and the amount.
4. Select Save and close.
   

To delete or void the invoice:

1. Go to the Sales menu.
2. Select Invoices.
3. Choose the invoice, and then click the drop-down under the Action column.
4. Choose Void or Delete.
   
5. Hit Yes to confirm.

Furthermore, to process a refund for the unfulfilled invoice with partial payment, you can choose to delete or void the invoice. Then, write a check under accounts receivable and receive payment to link the payment. I'll guide you on how to do it.

1. Go to the +New button.
2. Under Vendor, select Check.
3. Choose the customer from the Payee drop-down arrow.
4. Click the Category drop-down arrow, then select Accounts Receivable (A/R).
5. Enter the amount.
6. Hit Save and close.
   

To receive the payment.

1. Go to the +New button.
2. Click Receive payment.
3. Choose the customer from the drop-down arrow.
4. Select the check you've created.
5. Hit Save and close.
   

I hope this explanation helps. If you have any further questions or concerns, please let me know. I'm more than willing to help. Take care!

Thank you for your detailed response.  The approach you presented is viable but it doesn't maintain the accounting trail complete.  When you void the transaction you lose all the information on an invoice, including the amount that was received as advance payment.  This can create differences as any employee can make an error entering the wrong customer credit amount.

All the best,

C.