Creating Credit Memos
Credit memos allow you to reduce a client’s balance due when services change, billing errors occur, or refunds are needed. They function like “negative invoices,” and can be applied to future invoices or refunded.
What Is a Credit Memo?
A credit memo is a formal accounting document that reduces what a client owes. Unlike automatic credits from overpayments, credit memos are created manually to adjust account balances for specific reasons, such as:
Cancelled services
Returned products
Billing errors
Scope reductions
Goodwill or service recovery
Credit memos can be issued at the client level (general credit) or project level (specific to a project). They provide professional, auditable adjustments for accurate books and clear client communication.
When to Use a Credit Memo
Situation | Example | What to Do |
|---|---|---|
Scope Change | Client reduces project size | Issue credit for unused portion |
Service Recovery | Service didn’t meet expectations | Issue partial credit as goodwill |
Cancellation | Client cancels mid-contract | Credit the unused portion |
Returns | Client returns materials | Credit for returned items |
Billing Error | Overcharged or billed early | Credit the overbilled amount |
Types of Credit Memos
Type | When to Use | Notes |
|---|---|---|
Client-Level | For general account adjustments | Can be applied to any invoice |
Project-Level | For adjustments tied to one project | Can only be used within that project |
⚠️ Client-level credits cannot be used within projects, and vice versa.
How to Create a Credit Memo
Client-Level Credit Memo
Access the Client
Go to Clients & Projects
Select the desired client
Open the Sales History tab → Click Credits
Click + Credit Memo
Add Credit Details
Select or create the credited item/service
Enter a description
Set quantity and rate (credit amount per item)
Set Tax (If Applicable)
Check Taxable if applicable
Select the tax rate from the dropdown
Send or Save
Click Send to... in the top right
Choose Send to email or Mark as Sent to skip email
Confirm
Credit will appear under Credits
The Client Credit tile will update with the available credit amount
Project-Level Credit Memo
Navigate to the Project
Go to Clients & Projects
Select the client, then the project
Go to Sales History → Credits
Click + Credit Memo
Configure for the Project
Ensure the correct project is selected
Follow the same steps for adding items, tax, and sending
Best Practices
Be clear: Use descriptive reasons for each credit memo
Act promptly: Issue credits as soon as a change or correction is needed
Keep clients informed: Send credits to clients to ensure transparency
Stay consistent: Use standard item names/categories for reporting
Review regularly: Monitor open credits to apply or refund them as needed
Important Considerations
Credit Level Restrictions: Client-level ≠ project-level. Create credits in the correct context.
Tax Settings: Only check "Taxable" if the refund or credit is subject to tax.
Audit Trail: Credit memos become part of your official financial records.
Client Clarity: Always explain to the client what the credit is for and how it can be used.