We hope you don’t have to do this often, but sometimes you need to return money to customers. Here’s how to do it
You work hard to create the products and services you sell. So, of course, it’s disappointing when someone wants their money back. Sometimes, it has nothing to do with the quality of the item you sold them. Maybe you sent the wrong size or color, or someone paid for a service upfront and then decided to cancel.
And sometimes, customers just change their minds. If you don’t have a firm return policy—although we hope that you do—you may have to go through the process of refunding a customer their money. QuickBooks provides the tools you need to issue credit memos and refunds. We'll take a look at how this works below. And keep in mind - issuing a credit memo is the best way to ensure that your sales tax liability is properly updated!
Dealing with Customer Credits
You can’t just write checks to customers to give them refunds. You need to do the required bookkeeping in QuickBooks, so there’s a record of the activity. You’ll have three ways to deal with the credit:
Retain the funds in the customer’s account as an available credit,
Issue a refund via check, credit card, or cash (depending on how the purchase was originally paid for) or,
Apply the amount to one of the customer’s open invoices.
You have three options for processing credit memos in QuickBooks.
You have three options for processing credit memos in QuickBooks.To issue a credit memo, click the Refunds & Credits icon on the homepage or open the Customers menu and click Create Credit Memos/Refunds to open the Credit Memo window. Select the Customer/Job and change the Class and/or Template if desired. Select the Item(s) that the customer is returning and enter a Qty (quantity). When you’re done entering Items, click Save & Close to open the Available Credit window (pictured above). You’ll see your three options displayed there.
How to change a customer's payment to a credit on their account in QuickBooks Desktop
Retain as an available credit is selected by default. Leave it selected and click OK to return to the homepage. If you want to see how the credit is applied, go to the Customer Center by opening the Customers menu and clicking Customer Center. There are two ways to see the credit. Scroll down to the customer’s name under the Customers & Jobs tab and click it, or click the Transactions tab and then Credit Memos.
How to process a refund for a customer using QuickBooks Desktop
If you choose Give a Refund and then click OK, the Issue Refund window opens. Everything should be filled out here, though you can add a Memo if you'd like. You'll also need to make sure the correct payment method is selected in the Issue this refund via field in the upper right. If you choose Check, be sure to select the correct account and click the box in front of To be printed at the bottom of the window. The next time you print checks (File | Print Forms | Checks), your check should be listed. If you choose a credit card, you should enter a checkmark in front of Process credit card refund when saving.
[If you use Intuit Merchant Services and process a refund, the funds will automatically be returned to the credit card the client used to make the purchase initially)
Be sure to select the correct account and check To be printed if you’re issuing a refund via check.
Tip: Would you like to start accepting credit cards from customers? You’re likely to get paid faster. Contact us, and we can help you set up merchant services and save money on processing fees at the same time.
How to apply a customer's credit to an existing invoice in QuickBooks Desktop
The Apply to an invoice option is probably the easiest–if the customer has outstanding invoices that are equal to or greater than the credit memo. When you select that and click Save and Close, a window opens containing invoices that still need payment. The Original Amt. (the amount of the credit) appears in the upper right. Put a check in front of the invoice(s) where you want the credit to be applied, and you’ll see how the payment reduces the Amt. Due. Click Done.
What to do when a customer overpays
Sometimes, you have to issue a refund because customers have overpaid when they’re catching up on multiple invoices, for example. Open the Customers menu and select Receive Payments (or click Receive Payments on the homepage). Choose the customer and enter the Payment Amount and payment method. QuickBooks will put a checkmark in front of the invoices that are being paid.
You have two options available for dealing with an overpayment: Leave the credit to be used later or Refund the amount to the customer.
Look in the lower left corner. In the Overpayment box, you'll see the overpayment amount, as pictured above. You can choose between leaving the credit to be used later and offering a refund. If you choose the latter here, the Issue a Refund window will open for processing.
How to draft a clear refund policy for your products and services
As we mentioned before, your company should have a refund policy that spells out exactly what returns will be accepted. When you create one, send this out as a separate email to new and existing customers and display it prominently on your website to avoid uncomfortable interactions with your customers.
Credit memos and refunds are not difficult to process, but you may have questions when, for example, you have to refund a credit card transaction. Let us help when this happens so you don’t lose money or short-change a customer. As always, we’re here to answer any other questions you might have about QuickBooks.
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