If you have a situation where you need to reduce the amount your customer owes you due to a discount or return after the invoice has been issued, a credit memo is the easiest solution.

By creating a credit memo you can use it to pay down the invoice, and you won’t have to make any changes to what you have already sent to your customer, or mess up your sales tax or other reports!

I have created a video to walk through the steps:

‍

You can access credit memos directly from the “New” button on the top left

‍

Completing the credit memo is the same as preparing an invoice – except you are reducing the amount owing.  In this example I am “returning” name badges– you may be providing a discount after the fact.

‍

If you have QuickBooks Online set up to automatically apply credits the credit will be applied to the oldest invoice –you can change the invoice it is applied to from this screen – or if you do not have that setting enabled, open the “Receive Payments” page and apply the credit to the invoice.

‍

There are lots of different reasons to have credits – however, for these simple examples the credit memo is the perfect solution.

‍

Don't hesitate to reach out if you have any further questions, and check out further options below:

Download a free Small Business Month-End Checklist to help ensure your books are accurate and up to date!

‍

Cheers!

Credit Memos in QuickBooks Online

Kerry: [00:00:00] Hi, Kerry here from MyCloud Bookkeeping. I work with small businesses and entrepreneurs to help them manage their business finances in QuickBooks Online. If you're not sure if you're using the best plan for your business, check out my plan comparison below and be sure to watch right to the end for useful tips for your business.

Credits in QuickBooks Online can be a bit of a mess. If you have a relatively simple situation where you're providing a refund or a discount after the invoice has been issued, then a credit memo is the way to go. Once you've created and sent an invoice, it's not good practice to change it, particularly if it relates to a prior month.

There could be sales tax on it, it may have been included in an income tax filing, and you'll end up creating an even bigger mess. So today I'll show you how to have a credit memo, reduce the amount owing to your customer and apply it to their invoice. Here I am a sample company once again, and of course it's a [00:01:00] landscaping company.

And one of my customers Paulson Medical is going to be returning their rock fountain. So I'm going to pop up here new again, credit memo, and we're going to issue them a credit for the rock fountain. So where are we? Paulson Medical. Maybe we're going to give them a new one. Maybe it didn't work, but. I'm going to grab this rock fountain.

Here it is. They were invoiced $275 for it. I'm taking tax out just for simplicity. So, um, customer name, date of the credit memo, and what it is that they're returning. Now, I could also be providing them a discount because maybe, um, I don't know, the design services were weird or something didn't work like it.

It should have, in which case, I would be popping in here and putting design and giving them a 10% discount or whatever it is. But what I'm saying, this scenario is, is the return of something that [00:02:00] they purchased because these are typically when we'd use a credit memo. So now, I'm going to save and close this.

And in order to apply the credit memo to the invoice, I'm going to pop up here to new and receive payment. There is a setting you can have that automatically applies credits to invoices. I don't like that. It may not apply it to the correct invoice. So I'm going to go and choose my customer here. And what you will see will pop up is an invoice.

It's for $954.75 and here's the credit memo we just created for $275. So what it's doing is we're not receiving actually any monies. The amount received is zero. You'll see there's a deposit to undeposited funds. This could also be to the bank, whatever, but we're not receiving any money. So it's a zero transaction.

We're applying this $275 credit to the invoice and in the small print up here, [00:03:00] you'll notice the customer balance after the $275 will be $679.75. So this is how you apply the credit memo to the invoice. So now we're going to save and close this and pop in to the customer. Where are we? Customers and leads, customers, we select Olson.

And once again, this open balance is correct. The invoice here is showing us partially paid. The credit memo has been applied. And now we need to collect the $679.75 that's showing up here and here. And if we wanted, we could even send them a statement that would show them what's gone on. So I'm going to create a transaction statement.

I'm not too sure what's been going on with them all year. So I'm just going to put from the beginning of the year and apply. And let's print or preview the statement. You can see that [00:04:00] they had an invoice. We've received $275 and the amount due is $679. 75. So we can email this directly from here, showing Poulsen's that we have.

Process the credit. We probably could have emailed that credit memo to them as well and asking them to pay the outstanding balance of $679.75. So this is one of those scenarios where it's very easy to apply a credit, to create a credit memo. Some of the other scenarios where you've been short paid or those sorts of things can be a little bit of a mess, but this This one's nice and easy.

Hopefully that will make it easier for you to reduce the amount your customers owe you without having to change invoices or do journal entries. I really have seen it all. So a credit memo is a clean and tidy way to deal with returns and discounts after the invoice has been issued. And in order to keep on top of what your customers owe you, [00:05:00] it's important to regularly run your accounts receivable report.

Download my month end checklist below to ensure that you're getting all the information you need to manage your business finances and what you're looking at is accurate. If you have any questions or comments, please make a note below. I love to hear from you. Cheers.

‍