How to Create Credit Memos and Give Refunds in QuickBooks

We hope you don’t have to do this often, but sometimes you need to return money to customers. Here’s how to do it.

You work hard creating the products and services you sell. So it’s disappointing when someone wants their money back. Sometimes it has nothing to do with the quality of the item you sold them. Maybe you sent the wrong size or color, or someone paid for a service upfront and decided to cancel it. Customers just change their minds sometimes, too.

If you don’t have a firm return policy—and we hope that you do—you may have to go through the process of giving them their money back. QuickBooks provides the tools you need to issue credit memos and refunds. Let’s take a look at how this works.

You can’t just write checks to customers to give them refunds. You need to do the required bookkeeping in QuickBooks so there’s a record of the activity. You’ll have three ways to deal with the credit:

• Retain the funds in the customer’s account as an available credit,

• Issue a refund via check or credit card or cash, depending on how the purchase was originally paid for, or,

• Apply the amount to one of the customer’s open invoices.

To issue a credit memo, click the Refunds & Credits icon on the homepage, or open the Customers menu and click Create Credit Memos/Refunds to open the Credit Memo window. Select the Customer/Job and change the Class and/or Template if desired. Select the Item(s) that the customer is returning and enter a Qty (quantity). When you’re done entering Items, click Save & Close to open the Available Credit window (pictured above). You’ll see your three options displayed there.

Retain as an available credit is selected by default. Leave it selected and click OK to return to the homepage. If you want to see how the credit is applied, go to the Customer Center by opening the Customers menu and clicking Customer Center. There are two ways to see the credit. Scroll down to the customer’s name under the Customers & Jobs tab and click it or click the Transactions tab and then Credit Memos.

If you choose Give a refund and then click OK, the Issue a Refund window opens. Everything should be filled out here, though you can add a Memo if you’d like. You’ll also need to make sure the correct payment method is selected in the Issue this refund via the field in the upper right. If you chose Check, be sure to select the correct account and click the box in front of To be printed at the bottom of the window. The next time you print checks (File | Print Forms | Checks), your check should be listed. If you choose a credit card, you should enter a checkmark in front of Process credit card refund when saving.

The Apply to an invoice option is probably the easiest – if the customer has outstanding invoices that are equal to or greater than the credit memo. When you select that and click Save and Close, a window opens containing invoices that still need payment. The Original Amt. (the amount of the credit) appears in the upper right. Put a check in front of the invoice(s) where you want the credit to be applied, and you’ll see how the payment reduces the Amt. Due. Click Done.

Sometimes you have to issue a refund because customers have overpaid when they’re catching up on multiple invoices, for example. Open the Customers menu and select Receive Payments (or click Receive Payments on the homepage). Choose the customer and enter the Payment Amount and payment method. QuickBooks will put a checkmark in front of the invoices that are being paid.

Look in the lower left corner. In the Overpayment box, you’ll see the overpayment amount, as pictured above. You can choose between leaving the credit to be used later and offering a refund. If you choose the latter, the Issue a Refund window will open for processing.

As we mentioned before, your company should have a refund policy that spells out exactly what returns will be accepted. Send this out as a separate email to new and existing customers when you create one and display it prominently on your website to avoid uncomfortable interactions with your customers.

Credit memos and refunds are not difficult to process, but you may have questions when, for example, you have to refund a credit card transaction. Let us help when anything like this comes up so you don’t end up losing money or short-changing a customer. As always, we’re here to answer any other questions you might have about QuickBooks.

For more information, please contact the Accounting Team or email the office at info@totalbizcare.com to make an appointment.

To view more about the TBC Accounting Team, please visit our Accounting page or our QuickCare℠ page.