Credit Notes

Answer ID 9098   |    Published 06/06/2006 05:18 PM   |    Updated 09/12/2014 10:22 AM

This support note shows you how to issue a credit against a customer's account, and then settle that credit, for example apply the credit against another sale or provide the customer a refund.

Want to see credit notes in action?

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Watch our demonstration video.

How you handle credit notes depends on a variety of factors, such as:

  • Is the credit for the entire sale?
  • Is the credit for a partial sale?
  • Have any payments already been received?
  • Does the customer want a refund cheque or a credit on their account?

Note: When you offer a customer a refund, from your point of view you are offering a credit, but from their point of view they are receiving a debit. Conversely, when a supplier offers you a refund, from their point of view they are issuing a credit which to you is a debit.

Our support note Debit Notes provides information on raising a debit note from a supplier for applicable products.

Here's what we'll cover:

In what type of situation would I need to issue a credit note?

Creating a credit note

Applying a credit note

Printing or emailing a credit note

Deleting a credit note

Why can't I see any outstanding invoices when applying a credit note?

My customer already has a credit note and I've received further overpayment. Can I add more credit to the existing credit note?


In what type of situations would I need to issue a credit note?

Items returned because they were faulty

  • If all items were returned and they had not been paid for, just reverse the sale and use the Returns & Credits tab of the Sales Register to apply it to the original invoice.
  • If only some of the items were returned, create an Item Invoice credit just for the returned goods and use the Returns & Credits tab of the Sales Register to apply the credit to the original invoice.

 

Writing off a bad debt

At times people will be unable to pay their account, or simply refuse to pay it. Our support note Writing off bad debtsprovides information about handling bad debts.

 

Applying a discount if you forgot to apply it when applying payment

This scenario is best dealt with by means of the method outlined under Raising credits when you do not track inventory below. The negative amount would be allocated to the Discount Expense account. It would also be appropriate to use if you had not setup a linked account for Discounts given.


Creating a credit note

Reversing an existing sale:

This method can be used where an entire sale is to be reversed. This will create a credit note the whole value of the sale and return all stock items into inventory.

  1. Locate the original transaction in the Sales tab of the Transaction Journal or the Sales Register.
  2. Click the white zoom arrow next to the original sale to display its details.
  3. Go to the Edit menu and choose Reverse Sale. This automatically creates a credit note for the entire sale. Notice the negative stock quantities and sale value.
  4. Click Record Reversal to record the credit note details.

Note: If you have Delete Sale instead of Reverse Sale when you go to the Edit menu, you will need to make a change in your preferences:

  1. Go to the Setup menu, choose Preferences and click the Security tab.
  2. Ensure the option Transactions CAN'T be Changed; They Must be Reversed [System-wide] is selected as shown in the following example. Image
  3. Click OK. You will now see a Reverse Sale option when you look in the Edit menu when viewing a sale.

 

Returned Stock:

This method can be used for partial returns and credits. For example, if a customer buys 4 items and only returns 2.

  1. Go to the Sales command centre and click Enter Sales. In BusinessBasics and FirstEdge click the New Sale button within the Sales Register.
  2. Select the required customer.
  3. Click the Layout button at the bottom of the window and select the Item invoice layout and click OK.
  4. Enter the quantities of the items being returned as negative amounts.
  5. Enter the item number. The item's costs will be displayed as negatives.
  6. Click Record. Image

 

Raising credits when you do not track Inventory

  1. Go to the Sales command centre and click Enter Sales. In BusinessBasics and FirstEdge click the New Sale button within the Sales Register.
  2. Select the required customer.
  3. Click the Layout button at the bottom of the window and select Service, Professional, or Miscellaneous layout and click OK.
  4. Enter a description for the credit.
  5. Enter the account number to be credited into the Acct# field or select it from the list. This account should be the income account that the original sale was allocated to. Alternatively you could have an income account called 'Sales returns/Credits'. Image

Note: Service, Item, and Professional credit notes created through the Sales function can be printed at the time of recording or through 'Print Sale Forms' in the Sales command centre. Select the correct invoice type and change sale status to 'credit'. Miscellaneous credit notes cannot be printed.


Applying the credit note

Once you record a credit you must settle it using the Returns & Credits tab of the Sales Register in the Sales command centre. You have three options in settling credits:

  • Pay Refund - Use the refund option if you are going to issue a cheque to the customer for the full or a partial amount of the credit. To pay a refund, with the credit note highlighted click the Pay Refund button along the bottom left of the Sales Register window. If it is a partial refund, overtype the Amount field with the value being refunded (the balance of the credit will remain and will still need to be settled). Click Record to complete the Settle Returns & Credits transaction.
  • Apply to Sale - Use this option to apply the full or partial value of the credit note against one of more of the customer's outstanding invoices to reduce the balance owing. To apply the credit to an existing invoice, with the credit note highlighted, click the Apply to Sale button. Click into the Amount Applied column next to the invoice to which the credit is to be applied. If only a part of the credit is being applied this way, overtype the Amount field to reflect the amount being applied (the balance of the credit will remain and will still need to be settled). Make sure the Out of Balance and Finance Charge fields display $0.00 then click Record.
  • Settle at a later date - If there are no outstanding invoices on the customer's account, and you do not wish to write a refund cheque, leave the credit in Settle Returns & Credits so it can be applied to a future invoice. Image

Note: Debit notes are created in a similar manner in the Purchases module when you are returning stock or receiving a discount from your suppliers.


Printing or emailing a credit note

A credit note, which is effectively a negative invoice, can be printed or emailed in the same way as any other invoice. For more information, see our support note Emailing invoices.

 

Credit note not printing?

Check the following:

  • If the credit was created using the Miscellaneous Invoice type it cannot be printed.
  • Do you have the correct Invoice type selected in the Print Invoices window?
  • Under Advanced Filters, make sure you have the Invoice Status set to Credit or All Invoices/All Sales.
  • If the Invoice has already been printed, deselect the option Unprinted Invoices Only.
  • Ensure dates entered into the Invoices Dated From .. To.. fields cover the correct date range for the desired transaction.
  • If the option Invoice Numbers Between is selected, ensure the number range is correct.

Deleting a credit note

  1. Go to the Sales command centre and click Sales Register.
  2. Click the Returns and Credits tab.
  3. Locate the credit note.
  4. If the credit note was created from a negative sale:
    1. Click the zoom arrow next to the credit note to open the transaction.
    2. Go to the Edit menu and choose Delete Sale. The credit note will be deleted.
  5. If the credit note was created due to an overpayment:
    1. Click the zoom arrow next to the credit note to open the transaction.
    2. Click the History button.
    3. Locate the overpayment transaction and click its zoom arrow to open it.
    4. Go to the Edit menu and choose Delete Payment.

Why cant I see any outstanding invoices when applying a credit note?

If you are using categories, you will need to make sure your credit note has the same category allocated as your outstanding invoice. This will ensure the outstanding invoice will be displayed when applying a credit note. For more information on categories, see our support note Categories.


My customer already has a credit note and I've received further overpayment. Can I add more credit to the existing credit note?

No. An existing credit note cannot be increased in value. In this situation you would need to create a new credit note. This is done by creating a $0 sale, and receiving the amount against the sale as an overpayment. See our example below.

  1. Enter a new sale for the customer, for $0. Image
    When this sale is recorded, a message is displayed regarding the sale containing very little information. Click OK to this message.
  2. Go to the Sales command centre and click Receive Payments.
  3. Select the bank account to deposit the money into, select the customer, and enter the Amount Received.
  4. Select the option Include Closed Sales.
  5. Enter the amount received in the Amount Applied column for the $0 sale you've just entered. See our example below. Image
  6. Click Record. You will receive a notification indicating a credit note will be created.

Related support notes

Writing off bad debts

Debit Notes

Paying customer refunds electronically




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