# Refund a Customer This guide covers the two situations you will hit when a customer needs money back: * **Scenario A: Refund against a return.** The customer is sending goods back, or you have agreed to credit a service that was already invoiced. You record the return, generate a credit note, and (if the original invoice was already paid) refund the cash via a Payment Entry. * **Scenario B: Customer already has a credit balance.** A previous overpayment, an unallocated advance, or an existing credit note is sitting on the customer's account. You refund the cash directly via a Payment Entry that nets against the existing balance. Pure cash refunds with nothing on file (no return, no overpayment, no prior credit note) are not a single-document operation in NexWave. They always begin with a credit note that puts a balance on the customer, then a Payment Entry that refunds it. See *Goodwill or commercial-settlement refund* below. ## Before you start You will need: * A **Customer** record. Make sure the customer is active. * A **Company Bank Account** to pay the refund from. See the [Set up a Bank Account guide](/doc/dd0ff8a3-c28a-4932-9a04-39c086673d72). * For Scenario A: the original Sales Invoice or Delivery Note that the return is against. * For Scenario B: the prior Payment Entry, advance or credit note that created the customer's credit balance. * For a goodwill or commercial-settlement refund: a non-stock **Item** intended for refunds (for example, *Goodwill Adjustment* or *Customer Refund*) mapped to a contra-revenue or "Refunds and Adjustments" income account. Do not reuse stock or service items, you will distort their margin reports. * Permission as an Accounts User, Accounts Manager or System Manager. ## Scenario A: Refund against a return The flow has up to three steps: 1. Record the **Sales Return** as a Delivery Note with negative quantities (only if goods are physically coming back). 2. Generate the **Credit Note** (a Sales Invoice with *Is Return* ticked). 3. **Refund the cash** via a Payment Entry, but only if the original invoice was already paid. There are three valid paths to the credit note. Pick the one that matches what happened. ### Step 1: Record the sales return (only if goods come back) If the customer is sending goods back, record a return Delivery Note before the credit note so stock returns to your warehouse. Open the original **Delivery Note**, click **Create → Sales Return**, adjust the returned quantities (they appear as negative), and submit. ![Return Delivery Note with negative quantity](https://docs.nexwaveapp.com/api/files.get?sig=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJrZXkiOiJ1cGxvYWRzL2YxMTg5ZTEzLTdlMTQtNDA1ZC04MDI1LWMxZmI0Y2Y2MTg0ZC9hYzVmMDQ0MC0wZTBmLTQ4ZjItOGE3ZS02M2MyYmQ2OTZkYzkvMDMtcmV0dXJuLWRlbGl2ZXJ5LW5vdGUucG5nIiwidHlwZSI6ImF0dGFjaG1lbnQiLCJpYXQiOjE3OTI2MjA5MDAsImV4cCI6MTc5MjcwNzMwMH0.wZkbc4w8YakQ4AszChAE2VEovwvCA9yAe7BnDSj1ooA) The return Delivery Note carries: * **Is Return** ticked. * **Return Against Delivery Note** pointing to the original DN. * Negative quantities and amounts (the items moving back into stock). If you are crediting a service or charge with no goods to physically return, skip this step. ### Step 2: Create the credit note There are three ways to create the credit note. They are accounting-equivalent, but each is appropriate for a different situation. #### Path 1: From the original Sales Invoice (Create → Return) Use this when the goods are not coming back through stock (for example, a damaged-in-transit goodwill credit) or when you only want to credit charges, taxes or freight from a specific invoice without a stock movement. Open the original Sales Invoice and click **Create → Return**. NexWave creates a new Sales Invoice with: * **Is Return** ticked. * **Return Against** populated with the original invoice. * **Update Outstanding for Self** *unticked* by default. This is correct: with this off, the credit note's amount reduces the original invoice's outstanding directly. Do not tick it on this path, you will end up with two separate negative balances and have to net them manually. * Items copied across as negatives. Adjust the lines if you are only crediting part of the invoice, then submit. If the original was unpaid, the customer's balance is now reduced. #### Path 2: From a return Delivery Note (Create → Credit Note) Use this when goods have physically come back through Step 1. Open the return Delivery Note and click **Create → Credit Note**. The credit note's items match the returned lines automatically. ![Credit Note Sales Invoice with Return Against the original SI](https://docs.nexwaveapp.com/api/files.get?sig=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJrZXkiOiJ1cGxvYWRzL2YxMTg5ZTEzLTdlMTQtNDA1ZC04MDI1LWMxZmI0Y2Y2MTg0ZC8zY2IyNTk5MS1mZDE0LTRlODAtOGRiMy04MzdiOTgxNmMzM2MvMDItY3JlZGl0LW5vdGUucG5nIiwidHlwZSI6ImF0dGFjaG1lbnQiLCJpYXQiOjE3OTI2MjA5MDAsImV4cCI6MTc5MjcwNzMwMH0.vAduJkurHs818LgZD-2StbGDA7BKXOnNwI_UMAtTD3I) On this path: * **Update Stock** must be **off** on the credit note. The return Delivery Note has already moved stock back; ticking *Update Stock* here would double the inventory adjustment. * **Update Outstanding for Self** is typically ticked when you want the credit note to hold its own balance for a refund (covered in Step 3b). Untick it if you want the credit note to reduce the original invoice's outstanding directly. #### Path 3: Standalone credit note (Sales Invoice from scratch with Is Return) Use this when there is no single original invoice to credit against. Common cases: * A goodwill credit covering several past invoices, where apportioning across them is fiddly. * A commercial settlement that does not map cleanly to any one supply. * The original invoice is in a closed period and you do not want to disturb it. Create a new **Sales Invoice**, tick **Is Return (Credit Note)**, leave **Return Against** empty, and add lines with negative quantities. Use a non-stock refund item from your prerequisites (for example, *Goodwill Adjustment*) rather than the original stock item, so it does not pollute item-level analytics. ![Standalone credit note (Is Return ticked, no Return Against)](https://docs.nexwaveapp.com/api/files.get?sig=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJrZXkiOiJ1cGxvYWRzL2YxMTg5ZTEzLTdlMTQtNDA1ZC04MDI1LWMxZmI0Y2Y2MTg0ZC9kOGNkMDcwMC0yMzNmLTRjYzItOGZlNC04YjRhZjAzNWY1ODEvMDYtc3RhbmRhbG9uZS1jcmVkaXQtbm90ZS5wbmciLCJ0eXBlIjoiYXR0YWNobWVudCIsImlhdCI6MTc5MjYyMDkwMCwiZXhwIjoxNzkyNzA3MzAwfQ.7UP4W9hgQkvR8UX3ZwAKe0PjaDFylVqMy10T2TaOpGM) On this path: * **Update Outstanding for Self** must be **ticked**. Without it, the credit note posts a debit to Debtors with nothing for a refund Payment Entry to allocate against, and you cannot finish the refund cleanly. * **Update Stock** should be **off**. Goodwill / settlement credits are not stock movements. * The GST treatment must match the underlying supply (or be zero-rated on a non-supply ex-gratia payment). If unsure, consult the customer's accountant or your tax advisor before submitting. NZ IRD requires the credit note's GST to align with the original supply. ### Step 3a: Original invoice was unpaid Nothing more to do for the cash side. The credit note's negative outstanding offsets (in part or in full) the positive outstanding on the original invoice. The customer's net balance is now correct. ### Step 3b: Original invoice was already paid (or the credit note is standalone) This is where money actually leaves the bank. Open the credit note and click **Create → Payment**. NexWave drafts a Payment Entry pre-filled with: * **Payment Type** = *Pay*. * **Party Type** = *Customer*, **Party** = the customer on the credit note. * **Payment References** table with the credit note attached and fully allocated. * **Paid From** = your debtors / receivables account; **Paid To** = the bank account on the credit note (or your default). ![Payment Entry refunding against the credit note](https://docs.nexwaveapp.com/api/files.get?sig=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJrZXkiOiJ1cGxvYWRzL2YxMTg5ZTEzLTdlMTQtNDA1ZC04MDI1LWMxZmI0Y2Y2MTg0ZC85YWNjMDA3Ny1iNTA3LTQ0ZGYtYWRkYS0wNGY3ZDc0ZDI0MmYvMDQtcGF5bWVudC1lbnRyeS1yZWZ1bmQtYWdhaW5zdC1jcmVkaXQtbm90ZS5wbmciLCJ0eXBlIjoiYXR0YWNobWVudCIsImlhdCI6MTc5MjYyMDkwMCwiZXhwIjoxNzkyNzA3MzAwfQ.0tI0iA_e1JcjXrrp0nMU6mlRfxPcmDqFgQ2cULc0OJk) Pick the right **Company Bank Account** (typically the account the customer originally paid into, so the bank reconciliation is straightforward), set **Cheque/Reference No** (the bank reference for the refund), and submit. The GL impact: * **Debit** Debtors (Receivables): the customer's credit balance is consumed. * **Credit** Bank: cash leaves the company account. To find existing credit notes later, open the **Sales Invoice** list and filter by **Status = Return**. ![Sales Invoice list filtered to Return status](https://docs.nexwaveapp.com/api/files.get?sig=eyJhbGciOiJIUzI1NiIsInR5cCI6IkpXVCJ9.eyJrZXkiOiJ1cGxvYWRzL2YxMTg5ZTEzLTdlMTQtNDA1ZC04MDI1LWMxZmI0Y2Y2MTg0ZC82ZWE3MmY0Mi05Yzk2LTQ5NTUtYjhiZS1iNmY3OTIxMDYzNGEvMDEtc2FsZXMtaW52b2ljZS1saXN0LXJldHVybnMucG5nIiwidHlwZSI6ImF0dGFjaG1lbnQiLCJpYXQiOjE3OTI2MjA5MDAsImV4cCI6MTc5MjcwNzMwMH0.DDqG-YCf2nxeyrHPC1qGpECCgGEA6CzCeC3t9dLkh3o) ## Scenario B: Customer already has a credit balance The customer has paid you, or had a credit note raised, and now needs the cash back. There is no return to record; the credit balance already exists. The exact path depends on what is sitting on their account. ### B1: Refund an overpayment or unallocated advance The customer's previous Payment Entry was for more than the invoice it paid, or no invoice was attached at all. The unallocated portion sits as a credit balance on the customer. Do not create a credit note for this; the unallocated payment is already a negative outstanding line. Adding a credit note creates two negative balances and tangles the allocation. 1. Open **Payment Entry → New** (or from the customer record, **Create → Payment**). 2. Set **Payment Type** = *Pay*, **Party Type** = *Customer*, **Party** = the customer. 3. Pick the **Company Bank Account** to refund from. 4. Click **Get Outstanding Invoices**. The original advance / overpayment Payment Entry appears as a negative reference. Tick it. 5. Click **Get Outstanding Orders** if the credit was a deposit against a Sales Order. 6. Allocate the refund amount and submit. The two payment entries net to zero on Debtors. If the original was a Journal Entry instead of a Payment Entry, reference it directly in the **Payment References** table. ### B2: Refund against an existing credit note The customer already has a submitted credit note (from a prior return or goodwill credit) sitting unrefunded. From the credit note, click **Create → Payment**: NexWave pre-fills a Pay-type Payment Entry with the credit note attached and the unsettled balance allocated. This is the same flow as Scenario A Step 3b. Do not create a fresh Payment Entry from scratch and try to add the credit note manually, the allocation can come out wrong. ## Goodwill or commercial-settlement refund (no goods, no overpayment, no credit note) If none of the above applies, you cannot post a refund as a single document. NexWave validates *Cannot Pay from Customer without any negative outstanding invoice* and refuses to submit a Pay-type Payment Entry against a customer with a positive or zero balance, by design: it would leave an orphan debit on Debtors with no audit trail. The correct sequence is two documents: 1. Create a **standalone credit note** (Path 3 in Step 2 above). Use the goodwill / refund item, tick *Update Outstanding for Self*, leave *Update Stock* off, and pick the right tax template. Submit. 2. Refund the credit note as in Step 3b: **Create → Payment** from the credit note, pick the bank account, submit. The credit note records *why* the refund was issued (the journal narrative, the GST adjustment, the contra-revenue posting); the Payment Entry records *the cash movement*. Both are needed for a clean audit trail. ## Reconcile the bank transaction When the bank transaction for the refund appears in the Bank Reconciliation Tool, match it against the Payment Entry you created. See the [Bank Reconciliation Tool guide](/doc/df082da9-8898-4ffe-9a0c-56a0d7a36137) for the matching options. ## NZ / AU compliance notes * A credit note must reflect the GST adjustment on the underlying supply. Use the same tax template as the original invoice for return-against credit notes; for standalone credits, match the supply's tax treatment (or zero-rate when the credit is a non-supply ex-gratia payment). * Issue credit notes in the **current** GST period. Do not backdate into a closed period to "tidy up" a refund, the IR101 already filed for that period would no longer reconcile. * Goodwill / ex-gratia payments may be outside the scope of GST. If you are not sure, confirm the GST treatment with your tax advisor before picking the tax template. ## Common mistakes to avoid * **Submitting a Pay-type Payment Entry directly with no references on the customer.** It will fail with *Cannot Pay from Customer without any negative outstanding invoice*. Always create the credit note (or pull the advance) first. * **Standalone credit note with *Update Outstanding for Self* unticked.** The credit posts to Debtors with no offsetting line to refund against; you will not be able to allocate the Payment Entry. * **Ticking *Update Stock* on both the return Delivery Note and the credit note.** Double-counts the stock movement; you end up with twice as much stock back in the warehouse as you should. * **Backdating the credit note into a closed GST period.** Breaks the IR101 already filed; issue in the current period instead. * **Using a stock or regular service item for a goodwill refund.** Distorts item-level margin and sales reports. Use a dedicated refund item. * **Creating a credit note to refund an overpayment.** You end up with two negative balances; reference the original payment directly via *Get Outstanding Invoices* instead. * **Refunding to a different bank account or mode of payment from the original receipt.** The bank reconciliation will not match cleanly. Use the same account the customer originally paid into where possible. ## Troubleshooting | Symptom | What to check | |---------|---------------| | *Cannot Pay from Customer without any negative outstanding invoice* | The customer's net balance is positive (they owe you, or it's zero). Create a credit note first to put a balance on their account, then refund. | | **Create → Return** option missing on a Sales Invoice | The original Sales Invoice is not yet submitted, or you are looking at an already-returned invoice. Submit the original first; for the return, look on the original. | | Credit note's outstanding shows zero when you expected a refund balance | *Update Outstanding for Self* was unticked, so the credit note settled directly against the original invoice instead of holding its own. Cancel and re-submit with the flag ticked, or use the Path 3 (standalone) approach. | | Stock did not return to the warehouse | The credit note went via Path 1 with *Update Stock* off and there is no return Delivery Note. Either tick *Update Stock* on the credit note, or create a return Delivery Note (Step 1) first and use Path 2. | | Stock came back twice | *Update Stock* was ticked on both a return Delivery Note and the credit note. Cancel one of them and re-submit cleanly. | | Refund Payment Entry's bank account is wrong | The customer's default bank account, the original payment's bank account, or the credit note's bank account all influence the default. Override **Company Bank Account** at the top of the Payment Entry. | | Credit note's tax amount looks wrong | For Path 1 / Path 2 the tax template comes from the original. For Path 3 you set it manually. Confirm the right *Sales Taxes and Charges Template* before submitting. | | Refund issued for the wrong amount | Cancel the Payment Entry first, then re-create with the correct amount. The credit note's outstanding becomes available again as soon as the PE is cancelled. | | Customer balance still shows as outstanding after the refund | The Payment Entry was saved as a draft, not submitted. Open it from the customer's transaction list and submit. | ## Related guides * [Bank Reconciliation Tool](/doc/df082da9-8898-4ffe-9a0c-56a0d7a36137): match the refund's bank transaction against the Payment Entry. * [Send Customer Statements](/doc/50bb003b-7d14-4b75-93ef-f118d26a72d6): a clean balance after a refund makes for a tidy statement. * [Reference: Enter a Credit Note Against a Return](/doc/78494437-3ff3-47fd-8eea-a1de4f6a3015): the original credit-note creation walkthrough. * [Reference: Create Customer Refund](/doc/fc2cfff7-a805-4fb1-b850-83b64b01c793): the original payment-creation walkthrough.