When an invoice has a remaining balance due to a legitimate dispute, a pricing error, or a service issue, creating a credit memo is the cleanest way to close it out. Rather than writing the balance off as bad debt, a credit memo documents why the customer does not owe the full amount and applies the credit directly to the invoice. This guide walks through initiating that process from the Adjustments section.
Steps
1. Go to Adjustments. Click Adjustments in the left sidebar. You will land on the Open Balance Items tab.
2. Find the invoice with the open balance. Locate the invoice you want to resolve. Use the search bar to find it by customer name or invoice number, or scroll the list and use the Aging column to identify balances that need attention.
3. Open the three-dot menu on the row. Click the ⋯ menu on the right side of the invoice row.
4. Select Resolve balance. Click Resolve balance. The Resolve Balance modal opens, showing the customer name, invoice number, residual amount, and how many days the balance has been outstanding.
📸 Screenshot suggestion: The Resolve Balance modal showing the customer summary card at the top with the residual balance amount highlighted in amber, and the four resolution option cards below.
5. Select Create a credit memo. Click the Create a credit memo card. The Credit Memo creation modal opens, pre-filled with the customer name and the residual balance as the credit amount.
💡 Note: Choosing the credit memo path is the right approach when the customer has a valid reason for not paying the full amount. It keeps the transaction clean—the invoice closes through a credit rather than a write-off, so the amount does not appear in your bad debt figures.
6. Complete the credit memo details.
Review the pre-filled fields and add the remaining information:
CM Type — Select the type that reflects why the credit is being issued. For dispute resolutions, choose Dispute. For pricing errors, choose Price Adjustment.
Issue Date — Defaults to today. Adjust if the credit should be dated differently.
Approved — Check this box to make the credit available for immediate use. If it needs review first, leave it unchecked.
Comments — Note the invoice number and the reason for the credit. This will appear in the credit memo record and is important for your audit trail.
📸 Screenshot suggestion: The Credit Memo creation modal with the CM Type dropdown open, the pre-filled amount visible, and the Approved checkbox visible in the Memo Details section.
7. Add line items (optional). Click Add line item to document what the credit covers. Use Free-form entry to describe the specific dispute or adjustment being credited. This is optional but provides a clearer record, especially if the balance involves multiple line items from the original invoice.
8. Save the credit memo. Click Save. The credit memo is created on the customer's account. If you checked Approved, it is immediately available to apply to the open invoice.
Applying the Credit Memo to the Invoice
Creating the credit memo does not automatically close the invoice. You will need to apply the credit during the next payment processing session for that customer.
To apply it, go to Receivables, open a payment for the customer, and use Apply to Items. The credit memo will appear in the Credit Memos section at the top of the Apply Payment screen. Select it to apply the credit toward the open invoice balance.
See How to Apply a Credit Memo to an Invoice for the full steps.
⚠️ Warning: Until the credit memo is applied to the invoice, the invoice will continue to appear in Open Balance Items. The balance is not closed by creating the credit memo alone — it is closed when the credit is applied.