Welcome to the Fit Small Business Xero training course. In this lesson, we're
going to cover how to create a credit note in Xero. To follow along with me,
login to your Xero account now or click the link below this video for a free
30-day trial of Xero. You can also click this link to access our full Xero course
and other helpful resources. Let's get started. A credit note can be used to
reduce the amount that a customer owes you, also known as accounts receivable, or
the amount that you owe to a supplier, known as accounts payable. Some common
scenarios that will require you to create a credit note are: you issued an
invoice to a customer and the customer noticed a mistake before making the
payment; you issued an invoice and received payment from a customer, later
on the customer returned some or all of the products that were purchased and
paid for; you issued an invoice and then later decided to apply a discount to the
invoice; or you issued an invoice and the customer has overpaid you. Click the link
below to read more about these scenarios or keep watching to learn how to issue a
credit note. There are three ways to create a credit note in Xero. First, you
can add a credit note directly to an existing invoice or bill. Go with this
option if you know which invoice or bill that you want to allocate the credit
note to. Option number two, add a credit note to a customer or a supplier account
select this option if you want to just put a credit on your customer or
supplier's account to be used at a later date. And finally, you can copy an
existing credit note. If you previously created a credit note for similar items,
you can simply copy the existing credit note which will save you a few minutes
of data entry. We will cover each of these next. To add a credit note to an
existing invoice or bill, navigate to the accounts section. And for invoices you're
going to select sales, for bills you would select purchases. So let's click on
sales. Then you want to go ahead and click on the awaiting payments option to
locate an invoice that has not been paid. So we'll click on that.
And this displays a list of unpaid customer invoices and/or outstanding
prepayments or credits. So let's go ahead and click on the row for the invoice
that we want to go ahead and create a credit note for. Once you do that the
details of the invoice will display here. In the upper right hand corner you want
to click on the invoice options button, and go down and select add credit note.
The new credit note will display on the screen and to save you time, Xero has
copied all of the information that appeared on the customer's invoice to
this credit note template. If you plan to issue a credit for the entire invoice
and you don't want to make any changes, then all you have to do is scroll down
and simply save or approve the credit note. However, if you only want to issue
partial credit, then you want to make the necessary changes here in the body of
the credit note to reflect the products and services that you would like to
issue a credit for. And then go ahead and save or approve the invoice. Let's talk
about a few of these fields. The credit note number is a unique number issued by
Xero to keep track of all credit notes issued. In the How to Set Up Invoices
lesson, we discussed how the numbering sequence works. Please note that I
recommend that you do not make any changes to this number to avoid using a
duplicate number. You can click this link to learn more about setting up invoices.
Down here below the total line you'll see a line that says less credit to, and
then there's a link to an invoice. This actually reflects the invoice that the
credit note will be applied to. Save: similar to invoices you have the same
options available when saving a credit note. Save as draft will save your credit
note and allow you to close out of this screen.
Save and continue editing will allow you to save your credit note before you are
done with it. You can say periodically so that you don't lose any information as
you are completing the credit note. And finally save and submit for approval.
This will allow you to save your credit note and submit it for approval if you
do not have approval authority. Once the credit note has been approved, you can
email it to your customer. So again if you've got approval authority you've got
the green button here you can just click approve. And so we'll go ahead and
approve this credit note since we have that authority. You should see a
notification up here at the top that the credit note was approved. And as you can
see the updated invoice now is displayed. Down here at the bottom you will see the
reduction of the credit note that we just created. And so now the total amount
due for this invoice is 0. Please also note up here at the top the status of
the invoice has been changed to paid as indicated here. If you scroll down to the
very bottom of the invoice you will see a section called history and notes.
In this section you will see the person that actually created the credit note,
along with the day and time it was created and the amount. Now let's walk
through the steps to add a credit note to a customer or supplier's account.
So the first thing we want to do up here at the top is go back to our sales section
and click on the plus new button sign here, and go ahead and select credit note.
So since we did not create this credit note for a specific invoice or bill but
instead we want to add it to a customer or supplier's account, Xero is not able to
auto populate the fields as it did in the previous section. So what we'll do is
we'll go ahead and complete each of these fields together to create our
credit note. So starting with the To field.
So from the drop-down we could easily select a customer that we want to create
the credit note for. In the date field you want to just enter the date that
you'd like the credit note to reflect. As we mentioned previously the credit note
number is automatically issued by Xero and should not be changed. The reference
field is an optional field and can be used to provide additional information
about the credit note. Branding theme: the branding theme that you select during
the invoice setup will automatically populate in this field. You can click
here to access this lesson. In the item field you can select the item that you'd
like to issue the credit note for from the drop-down. Once you do that as you
can see the remaining fields here will automatically populate, and you can
change them as you need to. So in the description field we have typed a custom
description to explain the purpose of the credit note here. In the quantity
column you want to enter the correct quantity for the items that you are
issuing a credit for. For services you can just enter a quantity of 1.
The unit price will automatically populate here based on what was set up for the
item. If you need to credit a different amount then go ahead and type directly
in this field the amount that you would actually like to create the credit note
for. Account: from the drop-down you want to go ahead and select the account that
you would like to use to track this credit. In the How to Set Up Accounts
lesson we show you how to set up accounts. You can click here to access this lesson.
Generally you should select the same account that you coded the original
product or service to. Tax rate: this should default to the sales tax rate
that you have set up. You can click here to access the sales tax lesson. However,
if you did not charge sales tax or if it differs from the default, you can select
the correct sales tax rate from the drop down.
Region: region is a tracking category. Xero allows you to set up tracking categories
to see how different areas of your business is performing. For example
departments, locations, or in this example here regions. So from the drop-down you
simply want to select the appropriate tracking category that you would like to
use for this credit. And then finally the amount field: Xero will multiply the
quantity column by the unit price column to automatically calculate the amount field.
Please note once you have entered all of
the information, be sure to save or approve the credit note. Once the credit
note has been approved, you can email it to your customer. So we'll go ahead and
approve this credit note. And then as you'll see here so it says credit note
has been approved here. And then what you also notice is Xero has automatically
provided us with a couple of outstanding invoices for this particular customer.
So at this point we could actually allocate this credit to an invoice, and if we're
not interested in doing that we can just click cancel here. So we'll go ahead and
do that. And so now that the credit note has been approved and it's in an
awaiting payment status, we can actually email this to our customer by clicking
the email button here and following the on-screen prompts. So let's go ahead and
walk through how to copy an existing credit note. And so what we'll do here is
we'll stay in this screen where we have our credit note that we just created, and
then we'll go ahead and click on this credit note options button here. You can
simply select the copy option here and the new credit note will display. All the
information from the credit note that we copied has already been populated here,
and you can make any necessary changes that you need to, and then save the
credit note. You can easily allocate, edit, void, or delete a credit note in
Xero. You want to head back to the cells section by clicking on accounts and then
sales, and then let's go ahead and go back to our awaiting payments category
here. To select a credit note you can simply click on the customer contacts
name here to display the credit note. And then go ahead and click on the credit
note options button up here in the right-hand corner. And let's chat about
our options here. The first one is allocate credit. So to apply an open
credit to a customer invoice, you can simply click on this allocate credit
option and select the invoice that you would like to allocate the credit to.
Please note if you do not have any outstanding invoices for a customer
you will not see this as an option available. However, the next time you
create an invoice for a customer who has an open credit note, Xero will give you
the option to allocate the credit to the invoices as we just saw a few minutes ago.
Void: you will need to avoid a credit
note that is either awaiting payment or in a paid status. However, if a credit
note is in a draft or awaiting approval status, you can delete it instead. Please
note the delete option will appear here in this drop down for credit notes that
can be deleted. So as you notice we do not have the option to delete so
therefore this credit note cannot be deleted. But we can void it since we've
got that option here. And then finally edit: select the edit button to make any
necessary changes that you would like to make to your credit note and then just
save those changes after you make them. That wraps up the lesson on how to
create a credit note in Xero. To access our full Xero course or any of the other
lessons in this series, click this link. You can also find a link below this
video for a free 30-day trial of Xero. If you have feedback about this course
or if you have any questions please leave a comment below.
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