How to Apply a Credit Memo to an Invoice in QuickBooks Online

To apply a credit memo to an invoice in QuickBooks Online, first create a credit memo for the customer detailing the products or services being credited. Then, use the Receive Payment feature to apply the credit to the relevant invoice, ensuring the invoice balance is updated automatically. QuickBooks Online allows you to apply full or partial credits, track remaining balances, and keep your accounts receivable accurate. 

For added efficiency, integrating DepositFix with QuickBooks can automate syncing, apply credits instantly, and reduce manual bookkeeping tasks.

Create a Credit Memo

Before applying a credit memo, you need to create one:

1. Log in to your QuickBooks Online account.
2. Click + New from the left-hand menu.
3. Under Customers, select Credit Memo.
4. Choose the Customer for whom the credit memo will apply.
5. Enter the details:
   
   • Date
   • Products/Services being credited
   • Quantity and Rate
   • Tax, if applicable
6. Review the Memo section to note why the credit is issued (optional but recommended for records).
7. Click Save and Close or Save and New.

Example: If a construction contractor overbilled a client for 10 hours of labor but only 8 hours were completed, create a credit memo for the 2-hour difference.

Apply the Credit Memo to an Invoice

1. From the Dashboard, click + New → Receive Payment.
2. Select the Customer associated with the credit memo.
3. QuickBooks Online will display open invoices and available credits.
4. Check the invoice you want to apply the credit memo to.
5. Check the credit memo to apply it. QBO will automatically adjust the payment amount:
   
   • Invoice total minus the credit memo = amount due.
6. Review the Payment Method and Deposit To account.
7. Click Save and Close or Save and Send if sending a receipt to the customer.

Example:

Verify the Application

• Go to Sales → Customers and open the customer record.
• The invoice should show the applied credit memo.
• The credit memo will indicate it has been fully or partially applied.
• Run an Accounts Receivable Aging Report to ensure balances are correct.

Handle Partial Credits

If the credit memo doesn’t cover the full invoice:

• QuickBooks Online will show a remaining balance on the invoice.
• The customer can pay the remaining amount normally.
• Any remaining credit on the memo can be applied to future invoices.

Example: If a $150 credit memo is applied to a $200 invoice, the remaining $50 is the new invoice balance.

Communicate With Your Customer

• After applying the credit memo, it’s a best practice to send a confirmation to the customer.
• Include the invoice number, original amount, credit applied, and remaining balance.
• This reduces confusion and maintains professional customer relations.

Bonus: Automate Credit Memo Application with DepositFix

If you integrate DepositFix with QuickBooks:

• Credit memos and invoices can sync automatically.
• Payments can be applied instantly to open invoices, including partial credits.
• Reduce manual data entry and reconciliation errors.
• Pass online payment fees to customers if needed.