Customer Refunds
Return money to a customer. Two scenarios: credit note issued and overpayment received. Both post a Customer Refund that moves cash back to the customer.
A customer refund is the physical transfer of cash back to a customer. It is distinct from a credit note (which reduces what they owe) and from voiding (which reverses the original transaction entirely). A refund happens after money has already been received — either because a credit note created a credit balance, or because the customer overpaid. It is its own document, Customer Refund, numbered CRF-.
Two Refund Scenarios
| Scenario | What Happened | How to Refund |
|---|---|---|
| Credit note issued | Customer returned goods or the invoice was reduced after payment. A posted credit note left an unapplied credit on the customer's account. You now owe the customer money. | From the credit note: More → Convert to → Customer Refund, or Lifecycle → Refunds → Create refund. The refund is linked to the credit note. |
| Overpayment received | Customer paid more than they owed. The surplus sits as an unmatched receipt and the customer page reads "This customer is in credit by …". | Sales → Invoices → Credit Refund tab → New (or /customer-refunds/new). Pick the customer and enter the surplus. |
Form Fields
| Field | Details |
|---|---|
| Customer | Required. |
| Date | Required. The date the money leaves. |
| Payment Method | Required. Bank Transfer, Cash, Check, Card, Wire Transfer, or the methods configured in Settings. |
| Payment Source | Required. Cashflow Account, or Uncategorized to tie the refund to an imported bank line. |
| Payment Account | Required. The bank or cash account the refund is paid from. |
| Amount | Required. Up to the customer's credit balance. |
| Details/Memo | Optional. The transfer reference; appears on the journal and the ledger. |
| Apply to Invoices | Optional. Name the documents the refund relates to. |
Journal Entry for a Customer Refund
Regardless of the scenario, the refund moves money out of the bank and back onto the customer's receivable, clearing the credit.
| Account | Debit | Credit | Description |
|---|---|---|---|
| Accounts Receivable | 1,500 | — | Credit balance cleared — the customer no longer holds money with you |
| Bank Account | — | 1,500 | Cash transferred out to the customer |
A credit note credited AR; an overpayment credited AR through the receipt. Either way the customer's receivable went negative — money you hold for them. The refund debits AR by the same amount, bringing the customer back to zero, and credits the bank account the money left from. No clearing account is involved.
Scenario 1: Refunding a Credit Note
Sales → Invoices → Credit Notes. Make sure the credit note is Issued. If it has already been applied to open invoices there is nothing to refund — the Credit card shows Remaining credit.
On the credit note, click More → Convert to → Customer Refund. The refund form opens with the customer pre-filled; enter the remaining credit as the amount.
Set Payment Method, Payment Source and the Payment Account the money is sent from. Set the date the transfer was (or will be) made. Put the transfer reference in Details/Memo.
The refund is Issued and its journal is written. The customer's account no longer shows an open credit; the bank account decreases by the refund amount.
Scenario 2: Refunding an Overpayment
Open the customer page. The Overview shows Unapplied payments and, once every invoice is settled, "This customer is in credit by …". The Collections stage on the Activities tab lists the Unmatched or Partly matched receipt.
Confirm that the receipt exceeds what should have been paid. For example, the customer owed USD 3,000 but transferred USD 3,500 — the USD 500 surplus is the refund amount.
Sales → Invoices → Credit Refund → New. Select the customer, enter the surplus, the bank account and the date of the outgoing payment.
The overpayment is cleared. The bank account is reduced. The customer's account is back to zero.
What Not to Do
| Incorrect Action | Why It Is a Problem |
|---|---|
| Void the original receipt to "undo" the overpayment | Voiding removes the receipt from the ledger. If the bank actually received the money, the bank account will be misstated. Voids are for errors, not refunds. |
| Create a manual journal to debit AR and credit bank directly | Bypasses the customer sub-ledger linkage. The customer statement will show the movement without a document behind it. |
| Leave the credit balance open indefinitely | The customer's money remains a liability on your balance sheet. Resolve credits within a reasonable time. |
Related
- The credit note that usually precedes it: Credit notes.
- Cash that was never applied to anything: Matching a receipt to invoices.
- What the refund's page shows: The document page.