Credits vs refunds: which and when

What is this page about: In Light, a credit and a refund are two ways of settling the same document, the customer credit. This page covers what posting a credit does to AR, revenue and tax, and how applying it to an invoice differs from paying it back as a refund, so you can pick the right one.

# On this page

• One document, two outcomes
• What posting a credit does to AR, revenue and tax
• Apply to an invoice: reduce what they owe
• Enter payment: give money back
• Splitting one credit between both
• Best practices
• Related articles

# One document, two outcomes

Light has one document for both cases: the customer credit. Once it's posted, you settle it in one of two ways:

You don't choose when you create the credit. You decide once it's posted.

# What posting a credit does to AR, revenue and tax

Posting is the step that changes your books. Customer credits have no approval step, so posting goes straight from Draft to Posted.

1. Go to Revenue & Invoicing > Customer credits and click Create customer credit, or open an invoice and use Issue customer credit from its ⋮ menu.
2. Fill in Customer, Entity, Transaction currency and Document template.
3. Add lines with Product, Quantity, Account, Tax code and Amount, so the lines add up to the Credit amount.
4. Click Post, then choose Post & send customer credit or Post only.

Posting reverses the original sale:

• Revenue is debited, which reduces it.
• Tax is debited, which reverses the output tax charged.
• Accounts Receivable is credited, so the customer's balance drops straight away.

Applying or refunding the credit afterwards doesn't touch revenue or tax again. It only settles the AR balance the credit created.

# Apply to an invoice: reduce what they owe

Applying matches the credit against an invoice. It doesn't post anything new to revenue or tax.

1. Open the posted customer credit.
2. Click Apply to invoice and select the invoice. Only Open and Partially paid invoices for the same customer, entity and currency are listed.
3. Check Available invoice amount and Total credit.
4. Click Apply to invoice, then Confirm.

The invoice's balance drops by the applied amount. The credit moves to Cleared, or Partially cleared if some of it is left. See Customer Credits for applying to several invoices.

If the credit is for one specific invoice, start from that invoice with Issue customer credit instead. The credit then applies itself when you post it. See Issuing a credit from an invoice and applying it.

# Enter payment: give money back

Use Enter payment when the customer should get money back rather than a lower balance, for example when they have no open invoices.

1. Open the posted customer credit.
2. Click Enter payment.
3. Set the Payment date, choose Payment to (the bank or ledger account the refund is paid from) and check the Amount.
4. Click Enter payment.

This credits the bank account and clears the customer's AR. A full refund moves the credit to Cleared, a partial one to Partially cleared. To match the refund to your bank statement, see Recording a refund and its bank line.

# Splitting one credit between both

A posted credit can be partly applied to an invoice and the rest refunded, because Light tracks how much of it is still available.

This needs partial allocation, which is on by default for each entity. It switches off automatically once the entity has an e-invoicing provider. On those entities a credit can be used once, for its full amount, so issue a separate credit for each part instead.

# Best practices

• Apply the credit when the customer still owes you money on another invoice. Refund it when they don't.
• Remember that revenue and tax are reversed when the credit posts. Don't look for a second adjustment when you apply or refund it.
• Start from the invoice with Issue customer credit when the credit relates to that invoice, so the two stay linked.
• Check an existing credit's remaining balance before creating a new one for the same issue.

# Related articles

• Customer Credits
• Issuing a credit from an invoice and applying it
• Recording a refund and its bank line
• Invoice Generation

Also searched as: customer credit vs refund, refund a customer, apply credit to invoice, credit note tax reversal, partially cleared credit.