From now on, all the flows we talk about will begin with a Customer Credit, so let’s get to know them in detail.
There are a number of basic facts you need to remember:
They always impact the customer’s account balance positively. If the customer was on zero, you now owe them money. If they owed you money previously, now they owe you less.
They do NOT impact stock - you need to also enter a 'Return' if you want to bring stock back.
They are required before a refund can be entered.
They can be applied in lieu of payment to Orders that are pending payment.
Full Credit from Sales Order
This is the easiest and quickest way. From an Order, just click the ‘Full Credit’ button. You’ll be asked for the date of the credit, which allocation account to use, and whether to send a confirmation email to the customer. These options will be explained a bit later.
A credit will be created to exactly mirror the Order - all the order lines will be transferred over, as well as shipping costs and web discounts etc. The total of the credit will be exactly the same as the sum of the original Order.
If you are indeed crediting the entire order (for example, for a package lost in transit), you won’t need to make any changes to the credit. If you are crediting MOST of the order, this is probably the best starting point - just delete the lines you don’t want to credit.
Note that this is THE ONLY way to credit shipping from an original Order. The other credit creation techniques won’t allow you to do that.
Also note that just creating a Credit from an Order doesn't actually APPLY it to that order (see 'Applications' below).
Manual Credit from a Sales Order
On the ‘Credits’ tab on every order you’ll find a ‘Manual Credit’ button. This is a quick way to kick off a Credit tied to a particular Order (and thus a particular customer), but without any of the order lines being transferred over. If you’re only crediting one or two lines in isolation, this is probably quicker than doing a ‘Full Credit’.
Create New Credit
You can always create a new Credit just like you can create any other record in the system. You might choose to do this if the Credit isn’t tied to any particular order. For example, a customer is claiming that a product he bought 6 months ago is faulty.
Remember to choose the correct Customer when creating Credits manually because you can't change the Customer on a Credit once it has been created.
Customer Balance
An OUTSTANDING (i.e. not used) Credit impacts the Customer’s account balance. It means you now owe them money.
Stock Levels
A Credit on its own does not impact stock levels. If you want to bring items back into stock, you need to create a Return separately.
Cost Allocation
Crediting a customer is accounted for as if the income has been lost. Therefore, in the system-generated journal entry created by the created, an entry will be made against the default account that has been set for customer credits. This should be an income account that is netted against top line revenue in income statements.
A Credit is ‘Outstanding’ or ‘Pending’ until it is ‘used’. There are two ways to ‘use’ a Credit:
Refund
Apply to a Sales Order
It is important to note that neither of these two things happen automatically. A Credit will sit ‘unused’ until you use it.
Once the whole amount of the Credit is refunded, applied or a combination of both, the Credit is considered fully used.
Refunds
The simplest path to take after a Credit has been raised is to refund the customer’s money. You’ll need to do the actual refund manually (e.g. in Stripe or Paypal). Once you’ve done the refund, record it on the Credit by hitting the ‘Refund’ button.
Note that you don’t have to refund the whole amount of the Credit. You can do a partial refund, which leaves an amount of the Credit outstanding. You could then go on to use that outstanding amount against an Order, or issue yet another refund. A common use for this technique would be if a customer has a large Credit and wants to use part of it as payment against an Order and have the rest refunded.
Applications
Another common use for a Credit is to use it to ‘pay’ for an Order. You can do this by hitting the ‘Apply’ button on the Credit and choosing the Order to which you want to apply the Credit as payment. Again, you don’t have to use the whole Credit - it’s OK to leave some of the Credit outstanding and then use that later, either as another application or refund it.
Applying a Credit has two impacts. Firstly, it will ‘use’ some or all of the Credit. Secondly, it will affect the payment status of the Order. If your Credit use covers the entire invoiced order amount, the order would go from ‘Pending Payment’ to ‘Paid’. Note that you don’t have to cover the whole Order amount. If the Credit application leaves some of the Order amount pending payment, you can either apply another Credit or just take payment from the customer.
Note that at least for now, it’s not possible for customers to apply Credits themselves when placing an order online, this currently needs to be done by an admin user.
It’s easy to make mistakes when creating and applying Credits. You can check the logic of what you’ve done by looking at the following
The customer’s balance: is it what you expect after the transactions
The state of the original Order: is it showing as fully paid, if that’s what you expect
The state of the Credit: is it ‘fully used’ if that’s what you expect.