Credit Memos Overview and FAQs

Credit memos give you a structured way to manage invoice adjustments and keep a clear paper trail. 

When a client is owed a partial credit on a service due to something like a billing mistake, an overcharge, or a service issue, a credit memo lets you apply that credit directly to a specific line item on an invoice, record a reason, and leave internal notes.

Credit memos also come with built-in approval controls so you can decide which employees can create, approve, and apply them.

Before You Start

Here are a few things to know before you continue:

• We recommend that only the Account Owner(s) or Admin(s) set up or change the settings covered in this article.
• Credit memos created by Admins are auto-approved and auto-applied by default.
• Credit memos are NOT enabled in Docket by default. You'll need to contact our Support team to have this feature turned on for your account.
• Credit memos are tied to specific line items on an invoice. A credit memo amount cannot exceed the value of the line item it's associated with. 
• You CANNOT unapply a credit memo from an invoice, only delete it.

Credit Memo-Related Settings

Before anyone on your team can create a credit memo, there are two settings that need to be configured:

1. Credit Memo Reasons
2. Employee Access for Credit Memos

These settings organize the paper trail around credit memos and give you control over who's allowed to create and apply credit memos.

Set Up Credit Memo Reasons

The first step in using credit memos is to add the reasons you might issue one to a client. 

These reasons act as categories that explain why a credit is being issued and they'll show up in your Credit Memos report for tracking purposes. 

To configure your credit memo reasons, just follow the instructions below: 

1. Click on “Account” in the bottom left corner.
2. Click on “Settings” at the top.
3. Click on “Company” right below.
4. Click on “View” on the Billing Settings card.
   
   
5. Click on “Invoice” at the top.
6. Click to expand the Credit Memos section.
   
   
7. Add your credit memo reason in the Add Reason field.
8. Click the + button to the right to add it to your list.
   
   
9. Don't forget to click "Save Settings" at the top of the page!
   
   

You can add as many reasons as your business needs to use when documenting credit memos. You can always add or remove reasons from the list as needed.

Set Up Employee Access

Docket gives you control over which employees can interact with credit memos. 

There are three separate permission toggles so you can mix and match access based on each employee's role.

To configure credit memo permissions for an employee, just follow the instructions below:

1. Click on "Employees" in the left-hand menu.
2. Click on the employee's profile to open it.
3. Click into "Access" at the top of their profile.
4. Click to expand the Permissions section.
   
   
5. Scroll down to the Credit Memos list and decide which permissions you want this employee to have.
   
   Turn off (grey) all of the settings if you don't want them to interact with credit memos at all.
   
   Keep them all on (blue) if you want them to have full access to credit memos. 
   
   
6. Click "Update Access" at the bottom to save your changes.
   
   

TIP: You change an employee's access as much as you need to.

Create a Credit Memo

Once you've configured the settings for credit memos in your Docket account, you're ready to start creating, approving, and applying them.

Credit memos are created from within an invoice and added to the line item that needs the adjustment.

To create a credit memo, just follow the instructions below:

1. Open the invoice that needs a credit memo and click on the "Credit Memo" button above the Line Items table.
   
   
2. In the prompt that appears, find the line item you want to apply the credit memo to and enter the credit amount you're giving to the client.
   
   Please Note: The credit memo amount cannot exceed the value of the line item itself.
3. Select a Reason from the drop-down menu.
   
   TIP: If the reason you need isn't listed, you'll need to add it to your settings before you can select it here. (See section above for instructions.)
4. Enter the Quantity of credit memos for this adjustment. In most cases this will be 1.
5. Add any internal notes in the Notes field.
   
   TIP: The Notes field is internal only. Your clients will not see it.
6. Click "Confirm" to add the credit memo to the invoice.
   
   

You'll now see a Credit Memos section appear on the invoice confirming the credit memo was created.

You'll also see the credit memo in the Billing section of the client's profile.

TIP: Use the Actions button to the right to delete a credit memo.

Approve or Reject Credit Memos

Once a credit memo is created, it might need to be reviewed before it can be applied depending on how you've set up access to credit memos for your employees. See section above.

You'll review and approve or reject credit memos using the Credit Memos report. It gives you a central place to review all pending credit memos across your account without having to open individual invoices.

To approve or reject a credit memo, just follow the instructions below:

1. Click into "Reports (Legacy)" in the left-hand menu.
2. Click on the Credit Memos report.
   
   
3. Use the filter options at the top of the report to narrow your search to find what you're looking for or open your search to review as many credit memos as possible.
   
   
4. Click on a credit memo from the list to open it.
   
   
5. Click "Mark as Approved" or "Mark as Rejected" at the top of the slideout.
   
   
6. Click "Confirm" to save your choice.
   
   

The report will automatically update to reflect your approval/rejection, but no notification will be sent to the employee who created the credit memo.

Apply a Credit Memo to an Invoice

Once a credit memo has been approved, it's ready to be applied to the invoice to reduce the amount owed.

TIP: Admins' credit memos will be auto-approved and auto-applied to the invoice they were created from.

To apply a credit memo, just follow the instructions below:

1. Open the invoice and click on "Actions" in the top right.
2. Click "Apply Payment" from the menu that appears.
3. Click on the Credit Memo that needs to be applied.
   
   
4. Click "Confirm" to apply it to the invoice.
   
   

The invoice will now show a Payments and Refunds section where the credit memo's amount has been applied in addition to the Credit Memos section.

Please Note: You won't be able to unapply the credit memo from the invoice. If you need to remove a credit memo from an invoice, you'll need to delete it completely.

Delete a Credit Memo

If a credit memo has been created in error and needs to be deleted, you can easily do that from the client's profile. 

A credit memo can be deleted regardless of whether it's been already applied to an invoice, but only approved credit memos can be deleted. 

Rejected credit memos cannot be deleted, but you can approve them and then delete them afterwards.

To delete a credit memo, just follow the instructions below:

1. In the Billing section of the client's profile, find the Credit Memo that needs to be deleted.
2. Click the "Actions" button to the right.
3. Click "Delete Credit Memo" if it hasn't been applied to an invoice or "Refund and Delete Memo Payment" if it has.
   
   
4. Click "Confirm" to delete the credit memo.
   
   

Frequently Asked Questions (FAQs)

These FAQs address common questions and quick clarifications to help you use this feature with confidence.

Will Approvers Be Notified When a Credit Memo is Pending Review? 

No. Docket doesn't send a notification when a credit memo is waiting for approval. The only way to find pending credit memos is to run the Credit Memos report and filter for pending items.

We recommend building a routine of checking the Credit Memos report regularly if your team uses this feature often.

Will Requestors Be Notified When Their Credit Memo is Approved or Rejected?

No. Docket doesn't send a notification when a credit memo is approved or rejected. You'll need to follow up with the requesting employee to let them know the outcome. 

Can a Credit Memo Exceed the Line Item Amount?

No. A credit memo cannot be greater than the value of the line item it's applied to. 

Can I Run a Report on Credit Memos?

Yes. The Credit Memos report lets you view all the credit memos created in your account along with additional details. This makes it easy to track patterns and stay on top of credits issued across your client base.

Who can Create, Approve, Apply, and/or Delete Credit Memos?

Access is controlled by the credit memo permission toggles in each employee's profile. The Account Owner and Admin(s) control the access for each individual employee.

If you have any questions, please reach out to our Support team through the chat widget on the bottom of this page or by sending an email to support@yourdocket.com!