Vendor Credits

A vendor credit captures money a vendor owes you back: a return, an overpayment, or a negotiated rebate. Instead of chasing a refund, you apply the credit to open bills and pay less cash.

Key capabilities

• Create Vendor Credit with vendor, amount, date, reason, optional vendor credit memo number, and the offset account(s) to credit, which can be any Chart of Accounts type or split across several accounts
• Reasons: Returned Goods, Damaged Goods, Service Issue, Pricing Error, Billing Adjustment, Rebate, Duplicate Charge, or Other
• Lifecycle shown as filter tabs: Draft, Issued, Partial, Applied, and Void
• Issue posts the journal entry and makes the credit available; Edit works while the credit is a draft
• Apply one credit across one or more open bills of the same vendor, from the credit (Apply to Bill) or from the bill (Apply Vendor Credit)
• Total, Applied, and Remaining amounts on every credit
• Void (with a reason) reverses an issued credit that has not been applied; Delete removes a credit and undoes its bill applications
• Generate Journal Entry or Attach Journal Entry on a credit that has none
• Vendor credit button on an email in the Bill Inbox, to record a credit from a vendor's credit note you received by email

How it works

Saving a credit creates a Draft; nothing is posted yet. Issue posts an entry that debits Vendor Credit Balance and credits the offset account(s) you chose. Applying the credit to a bill posts a second entry that debits Accounts Payable and credits Vendor Credit Balance, so the bill's balance due drops by the applied amount and the eventual payment covers only the remaining cash. If no offset account is chosen, the credit defaults to Uncategorized Expense.

flowchart LR
  draft["Draft"] --> issued["Issued"]
  issued --> partial["Partial"]
  partial --> applied["Applied"]
  issued --> applied
  issued --> void["Void"]
  draft --> void

How to use it

1. Open Vendor Credits and click Create Vendor Credit.
2. Select the vendor, amount, and date, choose the Offset Account (or split across accounts), and pick a Reason. Add the vendor's credit memo number if you have it.
3. Open the saved credit and click Issue to post the journal entry and make it available.
4. Click Apply to Bill, search for the bill by number, enter the Amount to Apply, and confirm. You can also open a bill and click Apply Vendor Credit.
5. Pay the rest of the bill in cash with Record Payment.

Pro tips

• Choose the offset account that matches how the original purchase was coded (for example the expense or inventory account), so the credit reverses it cleanly.
• A credit only applies to bills from the same vendor, and not to bills that are already Paid or Canceled.
• An applied amount cannot exceed the credit's remaining balance or the bill's balance due; split a large credit across several bills.
• Draft credits are not available to apply. The apply window tells you when a vendor has drafts waiting to be issued.
• Void a wrong credit before applying it. Once applied, remove the applications (Delete) instead.

In-depth guide

Statuses

• Draft — editable and not posted. Issued — posted and ready to apply. Partial — partly applied. Applied — fully used. Void — cancelled; an issued credit's entry is reversed.

Effect on the bill

Applying a credit lowers the bill's balance due without any cash transaction. When payments plus credits cover the bill, it flips to Paid; otherwise it becomes Partially Paid. Deleting a credit that was applied puts those bill balances back.

Accounting impact

• Issue: Debit Vendor Credit Balance, Credit the offset account(s).
• Apply: Debit Accounts Payable, Credit Vendor Credit Balance (dated the day you apply).
• Void of an issued credit: reversing entry.