Where to Turn Off Automatically Applied Credit Memos

A credit memo represents a reduction in the amount a customer owes, often issued due to returned goods, billing errors, or price adjustments. Accounting software frequently includes a default setting that automatically applies these credit memos to the oldest outstanding invoices for that customer. While convenient, this automatic application may not always align with a business’s specific payment allocation strategies.

Disabling Auto-Application in Common Software

To gain more control over how customer credits are utilized, businesses often choose to disable the automatic application feature within their accounting software. In QuickBooks Online, for example, users can navigate to the “Gear” icon, then select “Account and settings.” From there, choose “Sales” and locate the “Automation” section. Within this section, deselect the “Automatically apply credits” option.

For QuickBooks Desktop users, access the “Edit” menu and select “Preferences.” In the Preferences window, choose “Payments” from the left menu. Under the “Company Preferences” tab, there is typically a checkbox labeled “Automatically apply payments.” Unchecking this box will prevent the system from automatically applying credit memos to open invoices. Click “OK” to save changes.

Xero also manages the automatic application of overpayments and credit notes. While Xero does not have a direct global setting to disable auto-application of credit notes in the same way as QuickBooks, it manages this through how payments are recorded and allocated. When a payment results in an overpayment, Xero typically records it as an unallocated credit, which can then be manually applied to future invoices. Users must manually allocate these credits against specific invoices.

Applying Credit Memos Manually

Once the automatic application feature is disabled, businesses can manually apply credit memos to specific invoices. When processing a customer payment, the software will present available credit memos as an option. This allows for strategic allocation, ensuring credits reduce the balance of the intended invoices.

The manual process involves opening the customer’s payment screen or the invoice. Users will select the credit memo they wish to use from a list of available credits. They then choose the specific outstanding invoice or invoices against which to apply the credit amount. This method provides precision in managing customer accounts and matching credits to the appropriate charges.