Credit Notes and Refunds

Issue credits and return funds to clients while maintaining proper financial records.

🎥 Video Tutorials

Credit Notes

Refunds

Overview

Credit Notes and Refunds are two related but distinct ways to handle situations where money needs to go back to the client or credit needs to be issued.

Feature	Purpose	Result
Credit Note	Issue credit for use against future bills	Client gets credit balance
Refund	Return actual money to client	Client gets money back

Credit Notes

What is a Credit Note?

A credit note is a formal document that reduces what a client owes you or creates a positive credit balance on their account. Unlike a refund which returns actual money, a credit note creates an accounting entry that the client can use to reduce invoices. The scenarios requiring credit notes are common in professional services: perhaps you overcharged and need to correct a billing error, or the client experienced service issues that warrant compensation, or you're making a goodwill gesture to strengthen the relationship. Sometimes clients return work that wasn't what they needed, or you decide to apply a discount retroactively after an invoice was already sent.

Credit notes are created against invoices. The behavior of credit notes depends on whether you have Request for Payment (RFP) Mode enabled:

Without RFP Mode (Standard Billing): When you create a credit note on an invoice, the system creates credit on account and immediately allocates it to that specific invoice. This effectively cancels the credited amount due by the client. For example, if you create a €500 credit note on a €2,000 invoice, the outstanding balance on that invoice immediately reduces to €1,500.

With RFP Mode Enabled: In RFP Mode, invoices are generated after an RFP is paid. You can still create credit notes on these invoices, but the credit cannot be allocated to the invoice itself because that invoice has already been paid. Instead, the credit remains on the client's account for use against future invoices.

Types of Credit Notes

1. Credit on Account (General)

Issue credit not tied to any specific invoice or receipt.

When to use:

• General goodwill credit
• Settlement agreements
• Advance credit for future work
• Not related to specific invoice

Example: "We're issuing you €500 credit for future services"

2. Credit Note for Entire Invoice

Credit the full amount of a specific invoice.

When to use:

• Complete service cancellation
• Full refund of work
• Total reversal of invoice

Example: "Completely reversing Invoice #12345 for €2,500"

3. Credit Note for Part of Invoice (Non-Specific Items)

Credit a portion of an invoice without specifying which line items.

When to use:

• General discount on total
• Percentage off entire invoice
• Don't need to track specific items

Example: "€150 credit on Invoice #12345 (not assigned to specific items)"

4. Credit Note for Specific Items

Credit specific line items on an invoice.

When to use:

• Client disputes specific charges
• Certain services need reversal
• Detailed tracking required

Example: "Crediting 'Consulting Services' line (€500) from Invoice #12345"

Creating a Credit Note

Step-by-Step

1. Go to Payments page
2. Click "Add Transaction"
3. Select "Credit Note"
4. Choose the type of credit note:

For Credit on Account:

1. Select "Credit on Account"
2. Choose the Client
3. Enter Amount (e.g., €500)
4. Add Description/Reason
5. Click Save

For Partial Credit (Part of Invoice):

1. Select "Part of Invoice"
2. Choose the Client
3. Select the Invoice
4. Enter Amount to credit
5. Select the item(s) to credit against (optional)
6. Add Description
7. Click Save

For Full Invoice Credit:

1. Select "Entire Invoice"
2. Choose the Client
3. Select the Invoice
4. Full amount is automatically calculated
5. Add Description
6. Click Save

Result: Credit note is created and client's balance is credited.

Smart Credit Note De-Allocation

For tenants not using RFP Mode, creating a credit note now offers to automatically de-allocate the time entries and charges that backed the credited rows, returning them to unbilled status so they can be billed correctly elsewhere.

• For a full credit note (entire invoice), every row's allocated time and charges are de-allocated.
• For a partial credit note, de-allocation only applies to rows that are fully credited - rows that are only partly credited keep their original allocation intact, since splitting time entries below the row level would be ambiguous.

This avoids the manual chore of having to re-open the original bill, untick allocations, and try to remember exactly what was on which row. The result is cleaner WIP and a much lower risk of accidentally double-billing the same hours later.

Viewing Credit Notes

In Bills Page:

1. Go to Bills
2. Scroll to "Credit Notes" table (at bottom or in separate tab)
3. You'll see all credit notes listed
4. Click on any credit note to view details

Credit Note Details:

• Credit note number
• Client name
• Amount credited
• Date issued
• Related invoice (if applicable)
• Description/reason

Credit Note Documents

Credit notes have their own document template, just like invoices and receipts.

To View PDF:

1. Find the credit note in the list
2. Click "View PDF" or "Download PDF"
3. The credit note document opens/downloads

To Customize Template:

1. Go to Settings > Customizations > Document Templates
2. Find "Credit Note Template"
3. Click Edit
4. Customize:
   • Colors and branding
   • Header/footer text
   • Fields to display
   • Layout preferences
5. Click Save

Professional Appearance

Customize the credit note template to match your branding and ensure it looks professional when sent to clients.

Using Credit Balances

When a client has a credit balance from a credit note:

Future Invoicing:

• Credit is available as one of the balances which can be allocated to customer invoices
• You can allocate credit to close off unpaid invoices (in standard mode)
• Client's statement shows credit balance

On Account Statements:

• Credit notes appear as line items
• Reduce overall balance owed
• Clear audit trail

Refunds

What is a Refund?

A refund returns actual money to a client, reducing their account balance. Use when:

• Funds deposited in error - Client sent wrong amount
• Overpayment - Client paid more than owed
• Service cancellation - Return prepaid amounts
• Agreement change - Terms changed requiring refund
• Duplicate payment - Client paid twice by mistake

Key Point: Refunds reduce the client's balance by returning money, unlike credit notes which create future credit.

Refund Requirements

You can only refund to clients/groups that have:

• ✅ A positive balance (they've overpaid or have credit)
• ✅ Available funds in their account

You cannot refund if:

• ❌ Client has no balance
• ❌ Client owes money (negative balance)

Creating a Refund

Step-by-Step

1. Go to Payments page
2. Click "Add Transaction"
3. Select "Refund"
4. Choose Client or Client Group
   • Only clients/groups with balances will appear in the list
5. Review the balance information shown:
   • Total balance for this organization
   • Balance per bank account (if Bank Accounts enabled)
6. Enter Refund Amount
7. If using Bank Accounts:
   • Select which bank account to refund from
   • Can create multiple refunds from different accounts
8. Add Description/Reason
9. Click "Save Refund"

Result: Client's balance is reduced by the refund amount.

Bank Accounts and Refunds

If you're using the Bank Accounts feature, refunds become more sophisticated:

Scenario:

• Client "Ardvar Inc" has balances in two accounts:
  • Current Account: €1,041.11
  • Savings Account: €3,000.00
• Total: €4,041.11

You can:

1. Refund €500 from Current Account
2. Refund €500 from Savings Account
3. Total refund: €1,000 across both accounts

Why This Matters:

• Track which physical bank account the money came from
• Better reconciliation with bank statements
• Accurate per-account balances

Learn more about Bank Accounts

Viewing Refunds

In Payment Transaction Details:

1. Go to Payments
2. Find the refund transaction
3. Click "View Details"
4. See full refund information:
   • Amount refunded
   • Date
   • Bank account used (if applicable)
   • Description

In Account Statements:

1. Go to client profile
2. Generate Account Statement
3. Refunds appear as line items
4. Show date, description, amount
5. Affect running balance

Example Account Statement:

Date        Description              Debit      Credit    Balance
2024-10-01  Invoice #12345                      €3,540    €3,540
2024-10-15  Payment Received         €1,000               €2,540
2024-10-20  Refund: Overpayment               €1,000     €3,540

Common Workflows

Workflow 1: Issue General Credit to Client

Scenario: Goodwill gesture, giving client €500 credit for future work

1. Go to Payments > Add Transaction > Credit Note
2. Select "Credit on Account"
3. Choose client
4. Amount: €500
5. Description: "Goodwill credit for Q4 services"
6. Save

Result: Client has €500 credit to use on future invoices

Workflow 2: Credit Specific Invoice Items

Scenario: Client disputes €500 consulting charge on invoice

1. Go to Payments > Add Transaction > Credit Note
2. Select "Part of Receipt"
3. Choose client
4. Select the invoice
5. Amount: €500
6. Select "Consulting Services" line item
7. Description: "Credit for disputed consulting charges"
8. Save

Result: €500 credit issued, clearly tied to specific item

Workflow 3: Refund Overpayment

Scenario: Client accidentally paid €2,000 for €1,500 invoice

1. Allocate €1,500 to the invoice (bill is settled)
2. Client now has €500 balance
3. Go to Payments > Add Transaction > Refund
4. Select client (they appear in list because they have balance)
5. Amount: €500
6. Description: "Refund of overpayment"
7. Save

Result: €500 returned to client, balance cleared

Workflow 4: Refund from Specific Bank Account

Scenario: Client overpaid into your savings account, refund from that account

1. Go to Payments > Add Transaction > Refund
2. Select client
3. See balance shown per bank account:
   • Current Account: €0
   • Savings Account: €1,000
4. Select "Savings Account"
5. Amount: €1,000
6. Description: "Refund of funds deposited to savings account"
7. Save

Result: Refund tracked against correct bank account

Workflow 5: Partial Credit + Future Use

Scenario: Client unhappy with service, issue €300 credit on €1,200 invoice

1. Issue credit note for €300 on that invoice
2. Client still owes €900
3. Client pays €900
4. Invoice fully settled
5. Client has €0 balance

OR

1. Issue credit note for €300
2. Client's next invoice is €500
3. Apply €300 credit
4. Client only pays €200

Credit Notes vs. Refunds: Which to Use?

Use Credit Note When:

✅ Client will continue working with you ✅ You want them to use credit on future work ✅ Building goodwill for future business ✅ Correcting billing errors without returning money ✅ Discounts or service issues

Outcome: Client has credit balance to use later

Use Refund When:

✅ Client demands money back ✅ Overpayment that needs immediate return ✅ Client relationship ending ✅ Contractual requirement to return funds ✅ Error requires money returned

Outcome: Money physically returned to client

Use Both Together When:

✅ Partial refund + partial credit ✅ Complex settlement arrangements

Example:

• Client overpaid €1,000
• Refund €700 immediately
• Issue €300 credit note for future use

Best Practices

Recommendations

✅ Document reasons - Always explain why credit/refund issued ✅ Get approval - Manager/owner approval for significant amounts ✅ Communicate with client - Let them know credit/refund is being processed ✅ Send documentation - Provide credit note PDF to client ✅ Track patterns - Frequent credits/refunds indicate problems ✅ Use correct type - Credit for future use, refund for money back ✅ Customize templates - Professional credit note appearance

Troubleshooting

Problem: Can't create credit note

Possible Causes:

• No permission (manager/admin only)
• Client not properly set up
• Invoice doesn't exist

Solution: Check permissions, verify client and invoice exist

Problem: Client not appearing in refund list

Cause: Client has no positive balance Solution: Client must have overpaid or have credit balance to be refunded

Problem: Refund amount too large

Cause: Trying to refund more than client's balance Solution: Check client's available balance, refund only what's available

Problem: Can't see refund on account statement

Cause: Date range doesn't include refund date Solution: Adjust statement date range to include when refund was issued

Problem: Credit note template looks wrong

Cause: Template not customized or has errors Solution: Go to Settings > Document Templates > Credit Note Template and fix issues

Related Topics

• Write-Offs - Writing off uncollectible amounts
• Allocating Payments - Applying funds to bills
• Bank Accounts - Managing accounts for refunds
• Account Statements - Viewing client balances
• Document Templates - Customizing credit note appearance

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Need Help?

Credit notes and refunds typically require manager or administrator permissions. Contact your supervisor if you don't have access to these features.