When a vendor credit is the right answer

What is this page about: Three ways to handle a vendor overcharge or return: a credit entry applied to a bill, a credit entry refunded to your bank, and resetting the bill to correct it directly. It also covers what each one does to your payables balance.

# On this page

• Three ways to handle it
• Post a credit entry
• Apply a credit entry to a bill
• Refund a credit entry to your bank
• Correct the bill directly instead
• Best practices
• Related articles

# Three ways to handle it

Posting a credit entry is what reduces your payables balance, before it's applied or refunded. Applying or refunding afterwards settles the credit.

# Post a credit entry

1. If the vendor sent a credit note document, open it from Spend management > Bills, Inbox tab. While it's in Draft, open the actions menu and click Convert to credit entry. Otherwise, create one directly in Spend management > Credit entries.
2. Fill in Vendor, Entity, Credit amount, Currency, Effective date, Number and, if you want, Description (optional).
3. Add the credit lines, each with an Account and a Tax code.
4. Click Post. If your company has a Credit entry approval workflow with approvers, the button reads Submit for approval instead.

Posting debits Accounts Payable and credits the line accounts, the reverse of the original bill. This happens when you post, whether or not the credit is later applied or refunded. If your company has automatic allocation switched on, posting also applies the credit to the vendor's open bills straight away.

# Apply a credit entry to a bill

1. Open the posted credit entry.
2. In the bill application table, tick a bill for the same vendor, entity and currency.
3. In the Applied credit dialog, enter the amount to apply and click Apply.
4. Check the adjusted amount and the remaining credit.

You can apply credit to bills in Draft, Pending approval, Pending payment approval, Ready for payment release, Scheduled, Unpaid or Partially paid.

The bill's To be paid amount drops by the applied amount, and Credit total shows what was applied. While some credit is left over, the warning "Remaining credit is not zero." shows until it's fully used. Applying more than the credit has available is rejected.

# Refund a credit entry to your bank

If there's no open bill to apply the credit to, or you'd rather have the money back, record the vendor's refund with Enter payment:

1. Open the posted credit entry.
2. Click Enter payment.
3. In the Enter payment dialog, set the Payment date, choose Payment from (a bank account or a payment-enabled ledger account), and confirm the Amount. If the bank account's currency differs from the credit's, a second, read-only amount shows the converted value.

This records the money coming in from the vendor and clears the credit. Credit that's already applied to a bill can't be refunded.

# Correct the bill directly instead

Sometimes the bill itself was wrong from the start and there's no credit from the vendor behind the fix. Then it's often simpler to correct the bill. A posted bill allows only limited edits, so for a full correction, reset it first:

1. Open the bill and click Reset.
2. Confirm in the Reset bill dialog. This restarts the approval process and makes the bill fully editable.
3. Correct the line item, account or amount.
4. Submit it for approval again.

Reset is available while no posted credit entry is linked to the bill. Once a Posted or Partially cleared credit entry is linked, Archive and Reset are disabled, with the tooltips "Cannot archive posted bill linked to a credit note" and "Cannot reset posted bill linked to a credit note".

# Best practices

• Use a credit entry when the vendor issued or agreed to a credit. Use Reset when the bill was coded or priced wrong and nothing from the vendor backs a credit.
• Apply a credit against an open bill for that vendor when one exists. Refund it when none does, rather than leaving it unapplied.
• Remember that posting the credit entry already reduced AP. Applying or refunding it settles the credit without reducing payables again.
• Once a credit entry is linked to a bill, make further corrections with a new credit entry. Reset is disabled on that bill.

# Related articles

• Credit Entries (Vendor Credits)
• Adding and Managing Vendors
• Chart of Accounts Setup

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