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 Post subject: What is a Credit Memo and how do I use it?
PostPosted: Tue Apr 03, 2012 11:36 pm 
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Joined: Wed Sep 28, 2011 11:00 am
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A credit memo is very similar to payment received from a client, because it reduces the client's account balance. For example, if a client has a balance of 100, and you enter a credit memo for 15, the client's new balance will be 85.

The difference between a traditional payment received and a credit memo is that with a credit memo, the client did not actually pay you. A credit memo simply allows you reduce the client's account balance for a reason other than receiving an actual payment. Common reasons for using credit memos include:
  1. An error in the invoice - if you accidentally over-billed in an invoice, create a credit memo for the over-billed amount.
  2. A disputed invoice - if a client disagrees with an invoice amount and you agree to reduce it, create a credit memo for the amount you agree to reduce the invoice by
  3. Bad debt - if a former client owes you money and you have exhausted all means of collecting it, you can zero their balance by creating a credit memo for the amount owed.

Important notes:
  • Use the Payment Details field to describe the reason for the Credit Memo
  • Credit Memos do not count as income - the Gross Income report doesn't include credit memos.
  • Check with your accountant at tax time to see if any credit memos will affect your tax preparation. The Credit Memos report will provide a list of credit memos issued during a specific timeframe.

To create a credit memo, simply go to Payments and select Add New Payment. Enter the payment information as usual, but select Credit Memo as the Payment Type. We recommend that you also include a note about the reason for the credit memo in the Details field. (see screen shot below)


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CreditMemo.png
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