QuickBooks Online

How to Apply Discounts and Credit Memos to Customer Invoices in QuickBooks Online

Team members exploring how to apply credit memo and discounts to invoices in QuickBooks

Whether it’s encouraging early payments, managing customer returns, or addressing overpayments, it is essential to accurately apply discounts and credit memos to your customer invoices in QuickBooks Online. In this article, we’ll explain the benefits of incorporating discounts and credits into your invoices in QuickBooks. We’ll also show the steps on how to effectively apply these elements to your invoices.

Understanding Discounts and Credits

A discount is a reduction in the total amount due on an invoice. It is typically offered as an incentive to encourage prompt payment or to reward loyal customers. Discounts can take various forms, such as percentage-based discounts or fixed-amount discounts. For instance, you might offer a 10% discount on an invoice to entice the customer to settle the payment earlier than the due date.

Credits, on the other hand, are the amounts that a customer has either prepaid or that you owe them due to a returned item or an adjustment. Credits can arise from scenarios such as customer returns, overpayments, or refunds. When a customer has a credit on their account, a credit memo can be applied to future invoices to offset the amount owed.

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How to Apply Discounts and Credits to QuickBooks Online Invoices

Applying Discounts in QuickBooks

Click on +New and then select Invoice under the Customers column. Next, click on the cog wheel icon located at the upper right corner of the invoice creation form, and then tick the Total invoice box. 

Applying discounts to invoices in QuickBooks

Once done, the discount field will appear on the form. You can either select Discount percent or Discount value. 

Invoicing screen in QuickBooks highlighting the discount value field

Applying Credits in QuickBooks

To apply a credit memo to an invoice in QuickBooks, click on +New and then tap Receive payment under the Customers column. Select the customer from the dropdown list, and scroll down the Outstanding transactions section to locate the open invoice you want to apply the credit memo to. Specify how much credit you want to apply and click Save and close once done.

Applying a credit memo to an invoice in QuickBooks

The Benefits of Applying Discounts and Credits

Improved Cash Flow

Offering early payment discounts can accelerate cash flow by motivating customers to settle their invoices promptly. This can be particularly advantageous for small businesses that rely on a steady inflow of funds to meet their financial obligations.

Customer Retention

Providing discounts and credits to loyal customers can enhance customer satisfaction and loyalty. It demonstrates that the business values the customer’s patronage and is willing to reward them for their ongoing support.

Efficient Handling of Returns

Credits streamline the process of managing returns. Instead of issuing refunds separately, businesses can apply credits to future invoices, simplifying accounting and reducing administrative overhead.

Simplified Reconciliation

When credits are applied to customer invoices, the reconciliation process becomes more straightforward. Both parties can easily track payments, discounts, and credits, reducing the likelihood of disputes or errors.

Best Practices for Applying Discounts and Credits

To make the most of the discounts and credits feature in QuickBooks, consider these best practices:

  • Clear Communication: Clearly communicate discount terms to customers in advance. This avoids confusion and ensures that customers understand the conditions under which discounts are applicable.
  • Consistent Record Keeping: Maintain accurate records of all discounts and credits applied. This helps with tracking, reporting, and customer inquiries.
  • Regular Review: Periodically review outstanding credits to ensure they are applied to invoices promptly. Overdue credits might result in unnecessary financial discrepancies.
  • Automate When Possible: Utilize automation features in QuickBooks to streamline the application of discounts and credits. This reduces manual errors and saves time.
  • Document Policies: Create a clear policy for applying for discounts and credits, outlining criteria and procedures for both customers and employees to follow.

Wrap Up

Applying discounts and credits to customer invoices in QuickBooks is a powerful tool for enhancing customer relationships, managing cash flow, and maintaining accurate financial records. By using these features effectively, businesses can incentivize prompt payments, reward loyal customers, and simplify the management of returns. 

Have Questions? Need Help?

If you have any questions about the features of QuickBooks Online, you can give us a call at 866-949-7267 and one of our experts can walk you through the details. 

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