Decide between a customer credit and a refund

A credit changes what the customer owes or can use later. A refund returns money. They are related, but they are not interchangeable.

Start with the original transaction

Situation	What to review
A $300 deposit is returned before invoicing.	The unapplied balance on the original payment.
A customer paid $550 for a $500 invoice.	The $50 unapplied surplus, not another $50 sale.
Goods on an invoice were returned or the price was reduced.	A credit memo against the original sale, including any tax and inventory effects.
An invoice is unpaid and the customer cancels.	The invoice’s status and permitted correction action; no cash refund is needed if no money was received.

Open the original invoice and Payments Received first. Identify the amount already applied, any available credit, and any previous refund.

Return an unapplied deposit or overpayment

Open the payment in Sales & Receivables → Payments Received. A Refund action is available when there is a refundable unapplied amount and your permissions allow it. Follow refund an unapplied customer payment for the refund date, account, amount, and final balance checks.

If the deposit has already been applied to an invoice, it is no longer fully available as unapplied money. Review the invoice and its applications before deciding how to correct the sale or reverse the application. Do not create a second receipt or unrelated credit to force a refund through.

Reduce an invoiced sale

Use Sales & Receivables → Credit Memos to review the credit-document workflow. A credit memo should reflect the original customer, items or services, tax treatment, and reason for the reduction. Apply an available credit through the invoice’s Apply credits action when appropriate.

A returned inventory item also needs the correct stock treatment. Confirm the actual goods returned rather than assuming a financial credit alone explains the physical stock movement.

Follow credit and refund an invoiced sale for the credit memo, return-to-stock choice, full or partial refund, and expected balance checks.

Check the money separately

Recording a bookkeeping refund is not proof that a payment provider or your bank has sent the money. Confirm the refund in the system that processes it, retain its reference, and record it only once in the books. Fees and provider timing can affect what appears on the statement.

Afterward, compare the invoice balance, remaining customer credit, and bank or provider refund. For a dispute or chargeback, review the provider’s case rather than also issuing a separate refund without checking its status.

If the invoice is valid but cannot be collected, review writing off an invoice instead of inventing a payment.