How to Apply a Credit Memo to an Invoice in QuickBooks Online?

QuickBooks Online has been the one name that stands for the efficient execution of all of your financial activities and thus you must be familiar with most of its terms. One of such terms is a credit memo. Follow the steps to create and Apply Credit Memos in QuickBooks Online.

What are Credit Memos? 

A credit memo, or credit memorandum, can be added to a customer’s account, serving as a “credit” applicable to an open or future invoice. It acts like an in-store credit; instead of getting cash back, the credit can be used for future purchases. In QuickBooks, creating a credit memo is a simple process and serves as a useful tool to reduce the amount a customer owes, either immediately or in the future.

Credit memos play a vital role in any business’s financial management. They are used to correct errors, provide discounts, and maintain accurate accounts. Understanding how to apply a credit memo in QuickBooks Online is essential for efficient bookkeeping and smooth financial operations.

What are the different types of Credit Memo?

In QuickBooks, you are offered with different types of Credit memos which includes: 

1. Standard Credit Memos: Standard Credit Memo is the most commonly used credit memos in QuickBooks. With Standard Credit Memo, you can hold them to record refunds, and adjustments which are applied to the customer’s account. You can either print or email these credit memos to your customers. 
2. Recurring Credit Memos: You use Recurring Credit Memos when you apply for a discount or refund to a customer’s account regularly. This type of credit memos are usually good for businesses which have a recurring customer base, for example: a subscription based business. 
3. Discount Credit Memos: With Discount Credit Memos, you can apply a discount to a customer’s account. Businesses can easily use this type of credit memo to offer valuable discounts to their customers. They can offer these discounts at the time of returning items or making purchases. 
4. Void Credit Memos: A void credit memo will be used to only cancel an already misused credit memo. This can happen when a refund or credit is no longer necessary. Moreover, this can also happen when the customer has already received the credit or refund.

Why use a Credit Memo?

There are several reasons that are applicable to use a credit memo:

• Order Cancellations: Credit memos are commonly used to cancel either a portion or the entirety of an order previously placed. This is crucial, as it ensures the accuracy of records, as invoices cannot be altered or eliminated once delivered to customers.
• No Refund Policy: Certain businesses, instead of providing refunds for returned goods, may offer credits as alternatives. These credits can be redeemed for other products or services provided by the same establishment.
• Rewards or Incentives: In addition to their primary function, credit memos can also be utilized by businesses as a means to reward or incentivize their customers.

Why You Need to Create Credit Memos?

A typical credit memo is created for multiple reasons. Look at a few of the most generic reasons for which you need to create a credit memo:

• The customer has paid extra than what was originally billed or owed
• There is a return of product
• A refund has been requested
• A certain amount of store credit is being sanctioned or given
• The credit memo can be applied for a given customer with respect to an open invoice associated with it.

But how would you create a credit memo and apply it to an invoice?

Well, that’s what this article is here for. Let this article be your guiding light for finding the right directions to creating and applying credit memos on QuickBooks Online.

How to Create Credit Memos in QuickBooks Online

• Tap on the Plus (+) icon and choose Credit Memo
• Select the customer’s name for which you are willing to create the credit memo
• Insert the date of the Credit Memo
• Insert the vital information
• Select Save and close to successfully create the credit memo

How to Apply Credit Memos in QuickBooks Online

• From the left pane, choose Sales.
• Select and click on the customer’s name for which you are willing to apply the credit memo.
• Find the invoice for which you wish to apply the credit memo to and tap on Receive Payment.
• Input all the important information required once you land on the Receive Payment window.
• Ensure that you have chosen the right invoice by visiting the Outstanding Transactions section.
• Select Save and close to successfully apply the credit memo to an open invoice.

How to Apply a Credit Memo to an Invoice in QuickBooks Online?

Applying a Credit Memo in QuickBooks Online:

1. Locate the Credit Memo:
   Find the credit memo you want to apply by navigating to the “Sales” menu in QuickBooks Online and selecting “Credit Memos.”

2. Open the Credit Memo:
   Click on the credit memo you want to apply to open it.

3. Select the Invoice:
   Choose the invoice you want to apply the credit memo to from the “Apply To” drop-down menu.

4. Enter the Amount:
   Specify the amount you want to apply from the credit memo to the invoice.

5. Review and Confirm:
   Review the details and ensure they are accurate. Then, click “Save and Close” to apply the credit memo.

How to Send a Credit Memo in QuickBooks? 

1. Access QuickBooks and select the “Invoices and Credit Memos” tab.
2. Identify the specific credit memo you wish to send.
3. Click the “Send” option.
4. Enter the customer’s accurate email address.
5. Click “Send” to finalize the transmission of the credit memo.

Upon receiving the credit memo through email, the customer can review it and make adjustments as necessary to their account.

Credit memos are a valuable tool for managing finances and ensuring accurate accounting. By understanding how to apply a credit memo in QuickBooks Online, businesses can streamline their financial processes and maintain a smooth flow of transactions.

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