Applying a credit memo in QuickBooks Online lets you use a customer’s existing credit balance to pay off an invoice, reducing what they owe. This is common after a refund, a price adjustment, or a returned item. Before you start, make sure the credit memo already exists in QuickBooks and that the invoice you want to apply it to is still open (not already paid in full). You’ll also need to know which customer the credit belongs to—applying a credit to the wrong customer can cause bookkeeping headaches.
What You’ll Need
- An active QuickBooks Online account with Bookkeeper or Company Admin access.
- A credit memo that has already been created and saved for the customer.
- An open invoice for the same customer that you want to apply the credit to.
- Optional: a record of which invoice the credit should be applied to (if there are multiple open invoices).
Step-by-Step
- Log in to your QuickBooks Online account and go to the Sales menu (or Customers in older versions).
- Select Customers from the dropdown, then choose Customer Center or All Customers. Find the customer who has the credit memo.
- Click on the customer’s name to open their Customer Profile. Look for the Open Invoices and Credits sections on the right side. You should see the credit memo listed there.
- If the credit memo is not already applied, you’ll see a Apply button (or a link that says “Apply credit”). Click it. This opens a window showing all open invoices for that customer.
- In the Apply Credit window, you’ll see a list of open invoices. Enter the amount of the credit you want to apply in the Amount to Apply column next to the specific invoice. If you want to apply the full credit, just enter the full amount.
- If you have multiple open invoices and want to split the credit, enter partial amounts across several invoices. QuickBooks will show a running total of how much credit is left.
- When you’re done, click Save (or Done). QuickBooks will reduce the invoice balance by the applied amount and mark the credit memo as “Applied” in the customer’s record.
- To verify, go back to the customer’s profile and check that the invoice now shows a lower balance (or $0 if fully paid) and the credit memo shows $0 remaining.
Common Mistakes
- Applying to the wrong customer: Credits are customer-specific. Double-check the customer name before applying.
- Applying more than the invoice balance: QuickBooks will warn you, but you can still apply a credit that leaves a negative balance. That’s okay if you intend to create a new credit, but it can confuse your AR reports.
- Forgetting to save: If you close the window without clicking Save, the credit won’t be applied. Always look for the confirmation.
- Applying to a closed invoice: You can’t apply a credit to an invoice that’s already paid in full. You’ll need to either reopen it or use the credit for a future invoice.
- Not checking for existing applications: Sometimes a credit is already partially applied. Check the “Credits” section first—if it shows a remaining balance, that’s what you can apply.
Tips
- Use the Customer Center to see all open credits and invoices in one place—it’s easier than searching one by one.
- If you have many credits, consider applying them in order of oldest invoice first to keep your books clean.
- You can apply a credit to an invoice even if the invoice was partially paid. The credit will reduce the remaining balance.
- After applying, run a Customer Balance Detail report to confirm everything looks right.
- If you accidentally apply a credit, you can undo it by opening the credit memo and clicking Clear under the “Applied” section, but only if the invoice hasn’t been paid yet.
Troubleshooting
Credit memo doesn’t show up in the customer’s profile. Make sure you’re looking at the correct customer. If the credit was created under a different name or as a vendor credit, it won’t appear. Also check that the credit memo was actually saved and not left as a draft.
No “Apply” button appears. This usually happens when the credit memo has already been fully applied. Check the “Credits” section for a remaining balance. If it shows $0, the credit is used up. If it still shows an amount, try clicking on the credit memo number to open it, then look for the “Apply” link inside.
Invoice is not listed in the Apply Credit window. The invoice might be closed, or it might belong to a different customer. Verify the invoice status by going to the Sales > Invoices page and checking the status column. Only open invoices appear in the apply window.
You applied the credit but the invoice balance didn’t change. Refresh the page or log out and back in. If it still doesn’t update, check the invoice’s transaction history to see if the credit was applied to a different invoice by mistake.
You need to apply a credit to a future invoice. You can’t apply it to a non-existent invoice. Instead, leave the credit as unapplied and apply it later when the new invoice is created.
Frequently Asked Questions
Can I apply a credit memo to an invoice that is already partially paid? Yes, you can apply the credit to the remaining balance. The credit will reduce what’s still owed.
What if the credit memo is larger than the invoice? You can apply the full credit to the invoice, which will leave a negative balance (overpayment). QuickBooks will treat that as a credit for future use. Alternatively, you can apply only part of the credit and leave the rest for later.
Can I apply a credit memo to multiple invoices at once? Yes, in the Apply Credit window you can enter amounts for several invoices, as long as the total doesn’t exceed the credit amount.
How do I undo an applied credit? Open the credit memo, find the “Applied” section, and click Clear. This will remove the application, but only if the invoice hasn’t been fully paid and closed.
What’s the difference between a credit memo and a refund? A credit memo stays on the customer’s account and can be used against future invoices. A refund is actual money returned to the customer. Applying a credit memo does not issue a refund.
Can I apply a vendor credit to a customer invoice? No. Vendor credits are for bills you owe to suppliers, not customer invoices. You must use a customer credit memo for customer invoices.
Credit Memo Application Template
Use this simple table to track which credit memos are applied to which invoices. Fill in the blanks with your own data.
| Credit Memo # | Customer | Credit Amount | Applied To Invoice # | Applied Amount | Remaining Credit |
|---|---|---|---|---|---|
| CM-1001 | Acme Corp | $250.00 | INV-2001 | $250.00 | $0.00 |
| CM-1002 | Beta LLC | $100.00 | INV-2002 | $75.00 | $25.00 |
Sample data shown above is fictional. Replace with your own credit memo and invoice numbers.