Credit Memo in QuickBooks Online

A credit memo in QuickBooks is a customer-side (accounts receivable) document: it records money you owe a customer after a return, an overcharge, or a billing error, and it cuts what they owe you. Money a supplier owes you is not a credit memo: that is a vendor credit, on the Expenses side, which reduces your next bill payment. Mixing up the two is the most common QuickBooks credit mistake. Last updated July 2026.

Below: how credit memos differ from vendor credits and delayed credits, plus the steps to create and apply one in QuickBooks Online and QuickBooks Desktop. For US bookkeepers, AP and AR staff, and small business owners. Steps checked against Intuit's current support articles.

What is a credit memo in QuickBooks?

A credit memo in QuickBooks is a posting transaction that reduces a customer's open balance in accounts receivable. You create it when you owe a customer money: returned goods, a duplicate charge, a discount agreed after the invoice went out. It sits on their account until you apply it to an invoice or refund it.

Because it posts, it hits your books right away, cutting income (or whatever item is on the memo lines) and cutting accounts receivable. That is why it appears in sales reports before it touches an invoice. See our explainer on what a credit memo is and when to issue one.

Credit memo vs vendor credit in QuickBooks

A credit memo is for customers (money you owe them). A vendor credit is for suppliers (money they owe you). If you work in AP and a supplier sends a document titled "credit memo," you almost certainly need to enter it as a vendor credit. Entering it as a credit memo would wrongly reduce your revenue.

Document	Who it is for	Where it lives in QuickBooks	Effect on your books
Credit memo (credit note)	Your customer, when you owe them money	+ New (labeled + Create in the newer layout), Customers column	Reduces accounts receivable and reduces income or sales
Vendor credit	Your supplier, when they owe you money	+ New / + Create, Vendors column	Reduces accounts payable and reduces the expense or inventory account you originally coded
Refund receipt	Your customer, when you hand cash back	+ New / + Create, Customers column	Reduces income and reduces your bank balance, not AR

The tell is the direction of the money. Our guides on vendor credits and credit memos versus debit memos help when supplier paperwork is ambiguous.

Credit memo vs delayed credit vs refund receipt

All three give a customer something back, but they behave differently. A credit memo posts now and cuts the open balance. A delayed credit is non-posting: it does nothing to your reports until you add it to an invoice. A refund receipt moves cash.

Transaction	Posts to your books?	What it does
Credit memo	Yes, immediately	Reduces the customer's current open balance; applied via Receive payment
Delayed credit	No, non-posting until used	Tracks a credit for future use; added as a line item on a later invoice
Refund receipt	Yes, immediately	Returns money by check, cash, or card instead of crediting the account

How to create a credit memo in QuickBooks Online

Open the credit memo form from the create menu, pick the customer, enter what you are crediting, and save. The credit then sits on the customer's account, ready to apply.

Select + New (shown as + Create in the newer QuickBooks Online layout).
Under the Customers column, select Credit memo (or Credit note, depending on your layout).
From the Customer dropdown, select the customer. It must match the customer on the invoice you plan to credit.
Enter the details: date, product or service, quantity, amount. Use the same items and accounts as the original invoice.
Select Save and close.

For a delayed credit, choose Delayed credit from the same column, select the customer, enter the date and amount, and save. To use it, open an invoice for that customer, find the delayed credit and select Add.

How to apply a credit memo to an invoice in QuickBooks Online

How the credit lands depends on one setting. With Automatically apply credits on, QuickBooks applies it to the oldest unpaid invoice as soon as you save the memo, then rolls any leftover to the next oldest. With it off, you apply the credit through Receive payment.

Check or change the auto-apply setting

Go to Settings (the gear icon), then Account and settings.
Select the Advanced tab.
Select Edit in the Automation section.
Turn Automatically apply credits on or off.
Select Save, then Done.

Apply the credit manually (auto-apply off)

Select + New / + Create, then Receive payment.
From the Customer dropdown, select the customer.
In the Outstanding Transactions section, select the invoice you are crediting.
In the Credits section, select the credit memo (or memos) to apply.
Check the amount received. If the credit covers the invoice in full, the payment should be zero.
Select Save and close.

If auto-apply put a credit where you did not want it, open the invoice, select the hyperlink for the applied credit to open the payment transaction, then select More and Delete before reapplying by hand.

How to create a credit memo in QuickBooks Desktop

Desktop for Windows handles the credit and what to do with it in one flow. Create the memo from the Customers menu; when you save, Desktop offers three choices.

From the Customers menu, select Create Credit Memos/Refunds.
From the Customer:Job dropdown, select the customer and job.
Enter the items you are crediting, matching the original invoice lines.
Select Save & Close.
In the Available Credit window, pick one: Retain as an available credit (a negative amount goes into your A/R register for later use), Give a refund (by cash, check, or credit card), or Apply to an invoice (the Apply Credit to Invoices window opens so you can choose one).

To use a retained credit later: Customers, then Receive Payments, choose the customer in Received From, select the invoice, then Discounts and Credits. On the Credits tab, check the credit and select Done.

How to enter a vendor credit in QuickBooks Online

A vendor credit is the AP mirror image of a credit memo. Enter it against the vendor, code it to the same accounts as the original bill, then apply it next time you pay that vendor. Applying it is the step people forget, and unapplied vendor credits are money left behind.

Select + New / + Create, then Vendor credit.
From the Vendor dropdown, select the vendor.
Enter the Category details or Item details to match the original bill.
Select Save and close.

To use it, select + New / + Create, then Pay bills, and choose that vendor's bill. QuickBooks shows the available credit: check the Credit Applied amount and the resulting payment before saving. You can also open the bill, select Make payment, and pick the credit under Credits.

Why is my credit memo not applying to the invoice?

Nine times out of ten it is one of five things: the credit and the invoice sit on different customers, auto-apply is fighting you, the credit was already used, the period is closed, or the memo posted to a different A/R account.

Customer or sub-customer mismatch. A credit on the parent will not offer itself against a sub-customer's invoice unless billing is set to the parent.
Auto-apply is on. You will not see a Credits section in Receive payment, because QuickBooks already spent the credit on the oldest invoice.
Already applied. Open the credit memo and check its linked transactions. A fully used credit has nothing left to give.
Closed period. If the date falls before your closing date, QuickBooks blocks or warns you. Date the application in an open period.
Wrong A/R account or currency. A credit on one A/R account cannot be applied to an invoice on another, and both must share a currency.

Watch for the invoice that looks paid in QuickBooks while nothing cleared the bank. If your month-end involves turning a PDF bank statement into something QuickBooks can actually match against, that comparison is the fastest way to catch a credit sitting on the wrong invoice.

Handling credit memos and bills at volume

None of these steps are hard. The pain is upstream: someone reads the PDF and retypes dates, line items, quantities, tax and totals into QuickBooks. Do that 200 times a month and you have a data entry job, not a bookkeeping job.

That is the part we handle. Upload PDF or scanned invoices, bills, and credit memos to our QuickBooks converter and you get back clean Excel or CSV, fields mapped, ready to import. We extract the data. We do not post entries into your QuickBooks file, and we do not decide whether a supplier's document should be a vendor credit or a credit memo. That call stays with you. See how to import invoices into QuickBooks for the mechanics, and AP automation for QuickBooks for where extraction fits.

Frequently asked questions

Does a credit memo reduce income in QuickBooks?

Yes. A credit memo posts the moment you save it, cutting accounts receivable and the income account tied to the items on the memo. That is why it shows in sales reports straight away. A delayed credit does not, because it stays non-posting until you add it to an invoice.

Can I delete a credit memo in QuickBooks Online?

You can, but if it is already applied to an invoice, unlink it first by deleting the payment transaction that connected them. Otherwise the invoice quietly reopens. Voiding is often safer than deleting, because it keeps the audit trail and the transaction number intact.

What happens to an unapplied credit memo?

It stays on the customer's account as an available credit and reduces your accounts receivable total even though no invoice cleared. Review unapplied credits at month-end and either apply them to open invoices or refund them if the customer is not coming back.

Is a credit memo the same as a credit note?

Yes. QuickBooks says "credit memo" in the US and "credit note" in other regions and newer layouts, but it is the same transaction: a customer-side document that reduces what the customer owes you. The supplier-side equivalent is always entered as a vendor credit.

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