Some clients may want a credit instead of a refund check, using it to decrease the balance on a future invoice. There are several methods to manage credits within QuickBooks Online accounting software. A customer's existing balance can be immediately reduced by creating a credit memo. Alternatively, a deferred credit allows clients to utilize it at a later time.
Note: To carry out these steps, you must have access to the QuickBooks account that corresponds with your LeanLaw account. If you don't, you will need to ask someone with access to perform these actions.
How to Create and Apply a Credit Memo
Step 1: Enable or Disable 'Automatically apply credits'
Navigate to Settings ⚙ and then choose Account and settings.
Click on the Advanced tab.
Click Edit ✎ in the Automation section.
Switch on Automatically apply credits if you want to auto-apply credit memos to customer balances or open invoices. Turn it off if you wish to choose which open invoices the credit memos should be applied to.
Click Save, then click Done.
Step 2: Create Credit Memos
Click on + New.
Select Credit memo.
In the Customer dropdown, select the customer's name.
Input the credit memo details, such as the service date and the amount.
When finished, select Save & close.
Step 3: Allocate the Credit Memo to an Invoice
Note: If the auto-apply credits option is enabled, QuickBooks will do this for you.
Select + New.
Choose Receive payment.
From the Customer dropdown, select the customer.
In the Outstanding Transactions section, select the checkbox next to the open invoice you are applying the credit memo to. In the Credits section, select the checkbox next to the unapplied credit memo(s) you are applying.
Enter the Payment date and Amount received.
Once done, select Save & close.
How to Create and Apply a Delayed Credit
Step 1: Generating a delayed credit
Click on + New.
Select Delayed credit.
In the Customer dropdown, select the customer's name.
Input the details, such as the service date and the amount.
When finished, select Save & close.
This action saves the delayed credit, which can be applied the next time you invoice the customer.
Step 2: Applying the delayed credit to an invoice
Note: Remember that adding a delayed credit to an invoice from a previous accounting period will affect that period's balances.
Click on + New.
Select Invoice.
In the Customer dropdown, select the customer. This action opens a window showing all open transactions for the customer, including invoices and available credits.
Locate the delayed credit and select Add. This adds the credit as a line item to the invoice.
Complete the rest of the invoice as needed, then click Save and close.
How to Automatically Apply Overpayment Credits to Invoices
In some cases, a client may overpay an invoice. Instead of issuing a refund, you can allow QuickBooks Online to automatically apply that overpayment as a credit to a future invoice.
Note: Ensure that the “Automatically apply credits” setting is enabled in QuickBooks for this to work. (See instructions under Step 1: Enable or Disable 'Automatically apply credits' above.)
Here’s how QuickBooks handles overpayment credits automatically:
When you record a payment that exceeds the total of a customer’s open invoices, QuickBooks stores the excess as a credit on the customer’s account.
The next time you create an invoice for that customer, QuickBooks will automatically apply the available credit to reduce the balance due—provided the auto-apply setting is turned on.
If auto-apply is off, you will need to manually allocate the overpayment credit via the Receive payment workflow.
To view or manage existing credits from overpayments:
Go to the Customer Profile in QuickBooks.
Select the Transactions tab.
Filter or scroll to locate the overpayment credit and verify how it’s been applied.
This process is useful for reducing manual work and ensuring clients see accurate, up-to-date balances on future invoices without intervention.
This article is based on Intuit's existing documentation from the QuickBooks Support library. We have included the original document here for your reference.