When you issue a credit note against an invoice the client has already paid, the amount becomes credit you owe them. You settle it in one of two ways: refund the money, or apply the credit to another invoice the client still has to pay. You can split it across several settlements.
Before you start
- The credit note must be issued. You can't settle a draft or a cancelled credit note.
- If the credit note was raised against an invoice the client hasn't paid, it reduces what they owe on that invoice as soon as you issue it. Nothing is left to settle, so Record Settlement doesn't appear.
Record a refund
- Go to Sales → Credit Notes and open the credit note.
- Click Record Settlement. The window shows the Outstanding balance.
- Leave Refund selected.
- Check the Amount. It starts at the full outstanding balance. Lower it for a part refund.
- Set the Date.
- In Paid through, pick the bank, cash or other account the money was paid from.
- Choose the Payment mode: Bank Transfer, Cash, Cheque or UPI.
- Add a Reference number, such as the UTR or cheque number, if you have one.
- Click Record settlement.
Apply the credit to another invoice
- Open the credit note and click Record Settlement.
- Select Apply to future invoice.
- Enter the Amount and Date.
- In Target sales invoice, pick the invoice to apply the credit to.
- Click Record settlement.
The list shows the client's unpaid and partially paid invoices, each with its outstanding amount and status. The invoice the credit note was raised against isn't listed.
The amount can't be more than the credit note's outstanding balance, or more than the target invoice's balance due.
What happens next
- SmartLedger posts the journal for you. A refund reduces the client's customer credit and the bank or cash account you paid from. An application reduces the customer credit and the amount the client owes on the target invoice, whose status updates to match.
- The credit note shows PARTIALLY SETTLED while some balance remains and SETTLED once it's all used. If the credit note needs the client's ITC reversal acknowledgement, it only moves to settled once they acknowledge.
- Click View Settlements on the credit note to see every refund and application with its date, type, account, invoice, reference and amount.
- The Available Credit tile on the client's page goes down by the amount you settle.
Tips
- To see how much credit a client has across all their credit notes, open the client from Sales → Clients and look at Available Credit.
- Refunding by cheque or UPI doesn't limit which account you pick. Choose the account the money actually left.
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