Vendor Refunds
Record money coming back from a vendor — after a debit note, or for an overpayment.
A vendor refund is money flowing back from a vendor to your business. This happens in two situations: the vendor is returning money because you raised a debit note (you returned goods or disputed a charge), or the vendor is returning an overpayment (you paid more than you owed). Both post the same journal: cash in, Accounts Payable credited.
Two Refund Scenarios
| Scenario | What Happened | Starting Point | Journal |
|---|---|---|---|
| Debit Note Refund | You returned goods or received a credit for an overcharged bill. A debit note was raised. The vendor now owes you money. | An Issued debit note | DR Bank / Cash — CR Accounts Payable |
| Overpayment Refund | You paid more than the outstanding bills. The excess sits as an unmatched credit against the vendor. The vendor returns it. | Unapplied payments on the vendor page | DR Bank / Cash — CR Accounts Payable |
Scenario 1: Debit Note Refund
Debit Note DN000012 for 3,500 has been saved (status Issued). It represents a credit from the vendor — goods were returned.
The vendor transfers 3,500 back to your bank account.
Open DN000012 → More → Convert to → Vendor Refund. The refund opens with the vendor, the debit note in the allocation table and the amount pre-filled with its balance. Choose the Payment Source and the Payment Account the money landed in.
Save posts: DR Bank 3,500 — CR Accounts Payable 3,500. Status: Issued.
| Account | Debit | Credit | Description |
|---|---|---|---|
| Bank / Cash | 3,500.00 | — | Cash received from the vendor |
| Accounts Payable | — | 3,500.00 | Clears the credit the debit note created. Net position with the vendor is now zero. |
Scenario 2: Overpayment Refund
You paid 25,000 against a vendor bill for 20,000. The 5,000 excess sits as an unmatched credit — the vendor page shows Unapplied payments 5,000 and "You have overpaid this vendor by 5,000". The vendor returns the 5,000.
The vendor's Overview shows the overpayment alert and Unapplied payments.
Vendor transfers 5,000 back to your account.
Procurement → Bills → Vendor Refund tab → New. Select the vendor, enter 5,000, choose the Payment Source and the receiving Payment Account. Leave the Payment Type on Payment on Account — there is no bill to apply it to.
Save posts: DR Bank 5,000 — CR Accounts Payable 5,000. The vendor's balance returns to zero.
| Account | Debit | Credit | Description |
|---|---|---|---|
| Bank / Cash | 5,000.00 | — | Cash received back from vendor |
| Accounts Payable | — | 5,000.00 | The credit balance is cleared — neither side owes the other. |
Refund Fields
| Field | Required? | Details |
|---|---|---|
| Vendor | Yes | Pre-filled when converted from a debit note. |
| Date | Yes | The date the money arrived. |
| Payment Method | Yes | Bank Transfer (default), Cash, Check, Card, Wire Transfer. |
| Payment Source | Yes | Cashflow Account — the refund landed in one of your bank or cash accounts. Uncategorized — pick the uncategorised inflow from your bank feed. |
| Payment Account | Yes | The account the refund was received into. |
| Amount | Yes | The refund amount. Pre-filled from the debit note when converted. |
| Payment Type | — | Apply to Bill links the refund to the debit note or other open documents; Payment on Account leaves it against the vendor. |
| Details/Memo, Subject, Center/Location, Attachments | No | Optional pills. |
Applying Debit Note Credit to Future Bills
If the vendor does not refund cash but instead applies the credit to your next purchase, you do not record a refund. The Issued debit note already reduced your Accounts Payable, so the vendor's Payable figure and statement are right. When you next pay the vendor, pay the net amount: on the payment voucher, allocate to the new bill and add the debit note as a negative line of the settlement — or simply pay the bill less the credit and leave the debit note against the account.
Common Refund Situations
| Situation | Document | Resolution |
|---|---|---|
| Goods returned — vendor agrees to credit | Create a debit note from the bill (Lifecycle → Returns) | Refund cash (convert to Vendor Refund) or net it off the next payment |
| Vendor overcharged — agrees to correct | Create a debit note for the overcharge amount | Refund cash or net it off the next payment |
| Prepayment to vendor — project cancelled | The advance is a Payment on Account voucher | Record a Vendor Refund on account to clear it |
| Duplicate payment made in error | Void the duplicate voucher if the money did not leave | If it did, the vendor must refund — record a Vendor Refund on account |
Debit notes and refunds are separate documents. A debit note records the credit entitlement. A vendor refund records the cash receipt that extinguishes it. You need both to show the complete picture: you were owed money (debit note), and you received it (refund).
Related
- The credit a refund usually follows: Debit notes.
- Why a refund is not a void: Voiding a payment.
- Reading the vendor's position afterwards: Vendor detail & aging.