Issuing Credit Memos and Refunds in QBO

Enhances importance of credit memos and refunds

Bumps Happen

In the world of business, things seldom go as smoothly as we like. As a business owner, you have probably run into a situation where you need to credit customers for issues related to products, or services rendered. While it may not happen often, it creates extra work when it does. This is where credit memos and refunds in QuickBooks Online come in handy, because it can help limit the extra work.

Issuing credit memos and refunds to clients when necessary is a way that business owners can rectify a customer’s issue. As a top online accounting software platform, QuickBooks Online simplifies the process of issuing credit memos and refunds.


Issuing Credit Memos

As the term indicates, a credit memo is a system memo that a business applies to a customer’s account in the form of credit to their Accounts Receivable Account. In QuickBooks Online, creating a credit memo is a step-by-step process as follows:

  • Click Refunds & Credits from QuickBooks’ home page
  • or Select Create Credit Memos/Refunds from customers Menu
  • Select the correct Customer/Job
  • Choose the merchandise returned in the Item column of the applicable invoice or invoices
  • Enter quantity returned
  • Click Save & Close
  • The Available Credit window will open
  • Click the appropriate option
  • Window will close and the credit amount in the memo form will have been applied to customer’s account


What Happens Next?

Apply Credit to an Invoice

Once the credit memo has been issued, the customer will have the option of what they will do with the credit. The first option is to hold on to the credit and use it for a future invoice. This requires very little extra bookkeeping work, and your company will keep the cash for cash flow purposes. If your company’s refund policy is “no cash refunds,” then the client only has this option.

When you invoice the customer again, you will have access to the “Apply Credit to Invoices” window. Then, you will apply the credit amount to one or more invoices until the credit is fully absorbed. As a habit, you might want to consider doing queries to identify credit balances before preparing invoices.

Issuing Refunds

The second option is the customer can request an actual cash refund. QuickBooks Online can facilitate this transaction. To issue a refund, you will need to go to “Give a Refund”, open the refund menu, then issue the refund through the software’s payment system. The method of the refund will be something you have designated when you set up the credit memo.


Dealing With Overpayments with Credit Memos and Refunds

Customers may overpay for the goods or services they received. This results in the need for a refund check and will require you to record the transaction. A customer will typically make this error by forgetting to take advantage of available discounts or simply by paying too much in their haste to pay multiple invoices at the same time.

QuickBooks Online accounting software can detect the overpayment, assuming the customer didn’t inform you of the issue. The process will require you to open the Receive Payments window then you will start applying payments (placing checkmarks) next to the applicable open invoices. If you get to the end with no more invoices to pay and there is an additional amount still not categorized, then you know there is an overpayment.

To issue a refund on an overpayment, you will use the same refund process described above.

QuickBooks Can Help you with Credit Memos and Refunds

The advantage of using QuickBooks Online is the online accounting software platforms’ ability to handle bookkeeping tasks that aren’t everyday occurrences. If you would like to know more about the platform and how it can help streamline your work, please give us a call. As experts, we are available to help you set up online processes and create a QuickBooks Online account that works best for you and your business.

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