A credit memo in Business Central reduces an amount owed, either by a customer or to a vendor. You use a sales credit memo to correct or reverse a posted sales invoice, and a purchase credit memo to adjust an amount you owe a vendor. Unlike return orders, credit memos do not require a physical goods movement before posting.
Credit Memo vs. Return Order
| Situation | Use |
|---|---|
| Customer returns physical goods | Sales Return Order |
| Pricing correction or partial credit, no goods movement | Sales Credit Memo |
| Vendor overcharged, no goods to return | Purchase Credit Memo |
| Returning goods to a vendor | Purchase Return Order |
In practice, many companies use credit memos for small corrections and return orders when inventory needs to be tracked.
Creating a Sales Credit Memo
- Search for Sales Credit Memos using
Alt + Q. - Select New.
- In the Customer No. field, select the customer.
- Set the Posting Date. This controls which accounting period the reversal posts to.
- Optionally, fill in the External Document No. field with the customer’s reference number.
- Enter the lines manually with the item, quantity, and unit price to be credited, or use Get Posted Document Lines to Reverse (described below).
Using Get Posted Document Lines to Reverse
This action pulls lines directly from a posted invoice, which avoids re-entering data and ensures the credit reverses the correct amounts.
- From the sales credit memo, select Process > Get Posted Document Lines to Reverse in the ribbon.
- A list of posted invoices for the customer appears.
- Select the invoice you want to reverse. You can select individual lines or all lines.
- Select OK.
Business Central copies the lines into the credit memo at the original prices and quantities. You can adjust the quantity on any line if you are issuing only a partial credit.
Applying the Credit Memo to an Open Invoice
After posting, Business Central can apply the credit memo automatically against an open invoice, or you can apply it manually before posting.
To apply manually before posting:
- From the credit memo, select Process > Apply Entries.
- The Apply Customer Entries page opens, showing open invoices for the customer.
- Locate the invoice you want to offset and select it.
- In the Amount to Apply field, verify or adjust the amount.
- Select Set Applies-to ID to mark the entry.
- Close the page and return to the credit memo.
The credit memo will be linked to the invoice when posted. After posting, both entries are marked as closed if the amounts match fully.
Posting the Sales Credit Memo
- Review all lines and confirm the Posting Date is correct.
- Select Post from the ribbon.
- Confirm the posting when prompted.
Posting creates a Posted Sales Credit Memo and reverses the G/L entries from the original invoice:
- Debits the sales account (reducing revenue)
- Credits accounts receivable (reducing the amount owed by the customer)
If the credit memo was applied to an invoice, both the invoice and the credit memo are closed in the customer ledger.
Creating a Purchase Credit Memo
- Search for Purchase Credit Memos using
Alt + Q. - Select New.
- Enter the Buy-from Vendor No..
- Set the Posting Date and, if available, the Vendor Cr. Memo No. from the vendor’s document.
- Use Process > Get Posted Document Lines to Reverse to pull lines from a posted purchase invoice, or enter lines manually.
Posting the Purchase Credit Memo
- Review the lines and confirm quantities and amounts.
- Select Post.
Posting creates a Posted Purchase Credit Memo and reverses the original purchase entries:
- Credits the purchase account (reducing the cost)
- Debits accounts payable (reducing what you owe the vendor)
To apply the credit against an outstanding vendor invoice, use Process > Apply Entries before posting to open the Apply Vendor Entries page and link the credit to the correct invoice.
Notes on Corrective Invoices
In some localizations, Business Central offers a Corrective Credit Memo option directly from a posted invoice. This creates a credit memo pre-linked to the original and can be posted in a single step. Check the Correct and Cancel actions on the Posted Sales Invoice page, these create a corrective credit memo automatically and, optionally, a replacement invoice.
For situations where goods are physically returned before a credit is issued, see How to Process Sales and Purchase Returns in Business Central.