Apply a credit note to an invoice
Applying an issued credit note to an invoice reduces that invoice's outstanding balance, using up part or all of the credit. You can apply one credit note across several invoices until the credit is used up.
Applying does not create a new entry in your accounts — the bookkeeping already happened when the credit note was issued. Applying simply settles the invoice, in the same way that recording a payment does.
Before you begin
- The credit note must be Issued and still have credit remaining. See Create a credit note.
- You need an invoice that is:
- for the same customer as the credit note,
- in the same currency as the credit note, and
- issued with an outstanding balance.
Steps
- Go to Sales → Credit Notes and open the issued credit note.
- Select Apply to Invoice.
- In the Apply Credit Note to Invoice window, use Select Invoice to find the invoice. Only that customer's open invoices in the matching currency appear in the list, each showing its outstanding amount.
- Enter the Amount to Apply. This cannot be more than either the credit note's Remaining Credit or the invoice's Outstanding amount, whichever is smaller.
- Add Notes if you want to record why.
- Select Apply Credit Note.
[Screenshot required: Apply Credit Note to Invoice window showing Select Invoice, Remaining Credit and Amount to Apply]
Repeat these steps to apply any remaining credit to other invoices.
What happens next
- The invoice's outstanding balance drops by the amount you applied, and the amount shows on the invoice as credited.
- The invoice's status is worked out again from its new balance — for example, an invoice that is now fully covered will show as Paid. See Understand invoice statuses.
- The credit note's Remaining Credit goes down. On the credit note you will see it move from Not Applied to Partially Applied, and then to Fully Applied once all the credit is used. See Understand credit note statuses.
Accounting impact
Applying records one small journal on your accounts receivable control account: it moves the credit from the credit note to the invoice — a credit against the invoice and a debit against the credit note — so the two lines cancel and your total debtors do not change. No revenue or VAT entries are created; those were recorded when the credit note was issued. The journal is dated the later of the credit note's and the invoice's dates, so a posting lock covering that date stops the application. For a foreign-currency credit note and invoice raised at different exchange rates, the difference between the two rates is posted to foreign exchange gains or losses. Unapplying reverses the journal.
Important notes
- A credit note can only be applied to invoices for the same customer and in the same currency.
- You cannot apply more than the credit remaining, nor more than an invoice's outstanding balance.
- Applying a credit note is separate from recording a payment. Use a payment for money received; use a credit note application for value you have credited.
Undo an application: if you apply a credit note by mistake, you can reverse it. Open the credit note, find the row in its Credit Applications list and select Unapply. This restores the invoice's outstanding balance and frees the credit to use again. Once a credit note has no applications left, it can also be voided.
Troubleshooting
- The invoice you want is not in the list. — The invoice must be for the same customer, in the same currency as the credit note, issued, and still have an outstanding balance. Drafts, voided, written-off and fully settled invoices are not shown.
- "Currency mismatch." — The credit note and the invoice must be in the same currency. You cannot apply across currencies.
- The amount is rejected as too high. — Reduce the amount so it is no more than the remaining credit and no more than the invoice's outstanding balance.
- The credit note cannot be applied. — Only an Issued credit note can be applied. Issue it first; a voided credit note cannot be applied.