How to Create a Credit Memo and Apply It to an Invoice in QuickBooks Desktop

Before you start

• Know why the credit is owed: a return, a price correction or a goodwill credit. Put the reason in the memo.
• Credit the same items that were on the original invoice, so the credit lands in the same income accounts.
• Ask the customer whether they want the credit applied to an invoice, held for later, or refunded.
• For a card refund through QuickBooks Payments, sign in to QuickBooks Payments from QuickBooks Desktop first.

Step 1: Create the credit memo

1. 1Go to Customers > Create Credit Memos/Refunds.
2. 2In the Customer:Job dropdown, choose the customer.
3. 3Enter each item you're crediting, with its quantity and amount.
4. 4Add a memo with the reason, such as the return or the invoice number.
5. 5Select Save & Close. The Available Credit window opens.

Step 2: Choose what happens to the credit

• Retain as an available credit: the credit sits in Accounts Receivable as a negative amount. You'll see it the next time you open Receive Payments for that customer.
• Give a refund: you pay the customer back by cash, check or card.
• Apply to an invoice: the Apply Credit to Invoices window opens, so you can pick the invoice.

Step 3: Apply the credit to an invoice

1. 1In the Available Credit window, select Apply to an invoice, then OK.
2. 2In Apply Credit to Invoices, check the invoice the credit should reduce.
3. 3Select Done.

Apply a credit you kept for later

1. 1Go to Customers > Receive Payments and choose the customer in Received From.
2. 2Select the invoice, then select Discounts and Credits.
3. 3On the Credits tab, check the credit you want to use and select Done.
4. 4If QuickBooks asks you to confirm the transfer, select Yes.
5. 5Select Save & Close.

You can also start from the invoice. Open it, select Apply Credits, and check the credit under Available Credits.

Step 4: Refund the credit

1. 1In the Available Credit window, select Give a refund, then OK.
2. 2In the Issue a Refund window, choose how to pay in Issue this refund via.
3. 3For cash or a check, choose the account the money comes from.
4. 4For a card refund through QuickBooks Payments, choose the card type and select Process credit card refund.
5. 5Select OK.

How to unapply a credit memo

1. 1Open the invoice the credit was applied to.
2. 2Press Ctrl+H to show its transaction history and confirm the credit memo is there.
3. 3On the invoice, select Apply Credits.
4. 4In Previously Applied Credits, clear the checkmark next to the credit.
5. 5Select Done in the Apply Credits window, then Save & Close on the invoice.

The invoice goes back to its full open balance, and the credit is free to apply elsewhere. If it went on the wrong invoice, apply it to the right one with Step 3.

Edge cases

• A card payment that hasn't settled: with QuickBooks Payments, voiding is usually better than refunding. Intuit notes refunds cost more in fees and take days to reach the customer.
• Card refunds through QuickBooks Payments must go to the original card, within 6 months, for no more than the amount processed.
• Voiding a card refund: if it hasn't settled, open the credit memo or refund from the Customer Center, select View Refund receipt, then Void Refund.
• A small leftover credit you'll never use: Intuit suggests an invoice with an Other Charge item for the amount, then applying the credit to it. Agree the account with your accountant.

Where QuickBooks Desktop leaves the work to you

• Someone has to decide each credit: why it's owed, how much, and whether to apply, hold or refund it.
• Held credits sit in Accounts Receivable until someone applies them in Receive Payments or Apply Credits.
• Many credit memos start as a short payment. Working out why the customer paid less is up to your team.
• A credit applied to the wrong invoice stays there until someone notices and unapplies it.

How Logistify helps around credits

Logistify doesn't create credit memos or issue refunds. The Accounts Receivable Service matches customer payments in the bank file to the open invoices they pay and records them in QuickBooks Desktop as Receive Payments. Short payments and overpayments, which often end in a credit memo, are left for your team.

For the payment side, see how to receive payments and apply them to invoices.