How to Apply Credit Memos to an Invoice in QuickBooks Online

Create the credit memo first. New, Credit memo, select the customer, enter the product or service and amount, then Save and close. You cannot apply a credit that does not exist yet.

Open Receive Payment. New, Receive payment, then select the same customer from the dropdown.

Select the invoice and the credit. Tick the invoice under Outstanding Transactions, then tick the credit memo under Credits. The Credits section only appears once a credit memo exists.

Enter the credit amount. In the Payment column, enter how much credit to apply. Leave Payment method, Reference no, Deposit to, and Amount received blank, since no cash is changing hands.

Confirm the total, then Record and close. Check the remaining balance is what you expect before saving.

Go to Settings, Account and settings, Advanced, then Edit the Automation section.

Turn on Automatically apply credits, then Save. QuickBooks now applies each credit to the oldest open invoice, closing it if the credit covers the full balance and carrying any remainder to the next oldest.

If the customer has no open invoice, create a Delayed Credit instead (New, then Delayed Credit). Unlike a credit memo, a delayed credit does not affect sales reports until it is applied, and you can add it as a line when you next invoice that customer.