Credit memos, credits and refunds can be confusing, so here is some information that will help explain the differences.  Sometimes, the wrong type of transaction is used.  If that is the case, you may need to delete the transaction and re-enter.

What’s the difference between a credit memo, credit and a refund?

1. A credit memo is a posting transaction which can be applied to a customer’s invoice as a payment or reduction.

2. A delayed credit is a non-posting transaction that you can include later on a customer’s invoice.
3. A refund is a posting transaction which is used when reimbursing a customer money.

This means that:

• Credit memos are used to offset an existing customer balance.
• Delayed Credits can be included only on an invoice.
• Delayed Credits don’t affect a customer balance until they are included on a saved invoice.
• Refunds are used to show money given back to a customer to refund for services the customer is not happy with, to offset a credit balance, merchandise or service not received, or an overpayment.

1. Entering a credit memo will affect your customer’s balance, but may not affect a customer’s invoice, until you make that decision.
2. Entering a delayed credit will allow you to apply it as a line item on your customer’s next invoice.
3. Refunds given depending on the situation may or may not affect your customer’s balance.

1. • Type 1: Refund for goods or services that didn’t satisfy the customer. (Does not affect customer balance – accounts receivable (a/r), only the bank balance)
     Example: A customer already paid for an item, and is returning it for a full or partial refund.
     • This option will provide a  Refund Receipt  to record reimbursements to customers via cash, check/cheque, or credit card. ( Select the product/service you are refunding, and the dollar amount of the refund.)
   • Type 2: Pay the customer their outstanding credit balance. (Affects customer balance – a/r)
     Example: A customer has store credit, that they would like to have it paid out/redeemed for cash.
     • This option will allow you to provide your customer a refund check/cheque in order to offset any open credits they would like paid out.
   • Type 3: Refund for a prepaid order the customer hasn’t received.  (Affects customer balance – a/r)
     Example: A customer prepaid an order which has been cancelled, and you need to refund the payment.
     • This option is used when a client makes a down payment or prepayment and cancels the order before receiving the goods or services and no invoice or sales receipt was created. The option will lead you directly to entering in a check/cheque.
   • Type 4: Refund the customer for paying you to much. (Affects customer balance – a/r)
     Example: A customer over-paid on an invoice, and you need to return the excess money.
     • This option will allow you to provide a refund when a customer overpays and you want to give the customer money back (cash or a check/cheque) for the amount overpaid.

We hope you found this primer on credit memos, credits and refunds helpful.

At Stenson Bookkeeping Simplified we provide bookkeeping training and best practices that make your company and staff the skills to be significantly more effective.  Email, text or phone  John L Mottram, at john@stensonfs.com or 214-543-1855 or go to our website at www.stensonfs.com. We are ready to help you.