The basic steps to issue a refund in QuickBooks
To issue a refund in QuickBooks, you create a credit memo tied to the original invoice, then convert it to a refund check or record a payment back to the customer's account. The exact steps depend on whether you use QuickBooks Online or QuickBooks Desktop, and whether you are refunding a customer who paid by check, card, or bank transfer.
The most common path: open the original invoice, click the refund button (Online) or create a credit memo (Desktop), select which items or amounts to refund, and then either print a check, record a bank transfer, or apply the credit to a future invoice. The customer's payment record updates to show the refund, and your bank account reflects the outgoing money.
If you have not yet deposited the customer's payment, you can simply void the deposit and the check or transfer. If the payment is already in the bank, you must record an outgoing refund so your books stay accurate.
Key Takeaways
- In QuickBooks Online, click the original invoice and select Refund; in Desktop, create a credit memo tied to that invoice first.
- A credit memo reduces what the customer owes and creates a record of why money is leaving your account.
- You can refund by check, bank transfer, or credit card reversal depending on how the customer originally paid.
- If the payment has not been deposited yet, void the deposit instead of creating a refund to avoid duplicate records.
- Always link the refund to the original invoice so your income and accounts receivable stay correct.
QuickBooks Online: issuing a refund step by step
Open the customer's invoice in QuickBooks Online. At the top right, you will see a Refund button (or sometimes labeled as a dropdown menu with refund options). Click it.
QuickBooks will open a refund form that shows the original invoice details. You can refund the full amount or enter a partial refund. If you are refunding only some line items, uncheck the items you do not want to refund. Enter the refund amount in the field provided.
Choose your refund method: Check, Credit Card, or Bank Transfer. If you choose Check, QuickBooks will create a check in your register that you can print or mark as printed. If you choose Bank Transfer, enter the customer's bank details or select a saved account. If the customer paid by card, select Credit Card and QuickBooks will record a reversal to that card processor.
Click Save and Close. The refund is now recorded in your books, the customer's balance is reduced, and the money is flagged to leave your account. If you chose Check, print it or record it as sent. If you chose Bank Transfer, the transaction sits in your register ready to be sent through your bank.
QuickBooks Desktop: creating a credit memo and refund check
In QuickBooks Desktop, refunds work through a two-step process: first you create a credit memo, then you convert it to a refund check or record a payment.
Go to Customers menu, then New Transaction, then Credit Memo. Select the customer name. The credit memo form opens. Enter the date and reference number (or leave it blank for QuickBooks to assign one). In the Items section, select the items you are refunding or enter a line item called "Refund" with the dollar amount. Leave the quantity at 1 and the rate as the refund amount.
Click Save and Close. The credit memo is now in your system and reduces the customer's balance. Now go to Customers menu, Receive Payments. Select the customer. QuickBooks will show the credit memo as available to apply. Check the box next to it. The payment amount will show as negative (money going out). Click Save and Close.
QuickBooks will ask whether to write a check or record the payment another way. If you choose to write a check, go to Banking menu, Write Checks, and QuickBooks will have already created the check with the customer name and refund amount. Print it or mark it as printed. If you are recording a bank transfer, go to Banking, Transfer Funds, and enter the customer's bank details.
Refunding a payment that has not been deposited yet
If the customer's check or payment arrived but you have not yet deposited it, the fastest route is to void the deposit instead of creating a refund. This keeps your books simpler because no money actually left your account.
In QuickBooks Online, go to Banking, Transactions, find the deposit, and click Void. The deposit disappears and the customer's balance returns to what it was before the payment arrived. You can then return the customer's check or contact the card processor to reverse the charge.
In QuickBooks Desktop, go to Banking menu, Make Deposits, find the deposit, and click Delete. The deposit is removed from your register. The customer's payment record is cleared and you can return their check or reverse the card charge through your processor.
This method works only if the deposit has not cleared your bank yet. Once the bank has processed it, you must create a refund instead so your QuickBooks balance matches your actual bank balance.
Recording a refund when the payment has already cleared the bank
If the customer's payment is already in your bank account, you cannot simply void it. You must create a refund record so your QuickBooks balance stays in sync with your bank balance.
Follow the refund steps above for your version of QuickBooks (Online or Desktop). When you choose your refund method, select the one that matches how you will send the money back: Check if you are writing a check from your business account, Bank Transfer if you are sending it electronically, or Credit Card if the customer paid by card and you are reversing the charge.
Once you save the refund, the transaction appears in your bank register as money going out. Your accounts receivable decreases (the customer no longer owes you), and your bank balance decreases by the refund amount. When you actually send the check or transfer the money, the bank will match it to this record and the two will reconcile.
Partial refunds and refunds for specific items
You do not have to refund the entire invoice. In QuickBooks Online, the refund form lets you uncheck individual line items or enter a custom refund amount. In QuickBooks Desktop, the credit memo form lets you enter only the items or amounts you want to refund.
For example, if a customer ordered three items and wants to return one, you can create a credit memo for just that item's price. If a customer paid $500 but you are only refunding $300 due to a partial return or discount adjustment, enter $300 in the refund amount field.
The customer's balance updates to reflect only the refunded portion. If they still owe money after the refund, that amount stays on their account. If the refund is larger than what they owe, QuickBooks will show a credit balance (money you owe them) that can be applied to a future invoice.
Refunds for different payment methods
The refund process is the same in QuickBooks regardless of how the customer paid, but where the money goes differs.
Check payments: Create the refund in QuickBooks and choose Check as the method. Print the check or mark it as printed. Mail it to the customer or hand it to them. Your bank account decreases when the check clears.
Bank transfers or ACH: Create the refund and choose Bank Transfer. Enter the customer's bank account number and routing number (or select a saved account). Submit the transfer through your bank's online portal or let QuickBooks send it if your bank is connected. The money leaves your account within one to three business days.
Credit card payments: Create the refund and choose Credit Card. QuickBooks records a reversal to the card processor. The refund appears on the customer's card statement within three to five business days, depending on the card company and your processor.
PayPal or other payment apps: If the customer paid through PayPal, Square, or another app, create the refund in QuickBooks but process the actual refund through that app's dashboard. QuickBooks records the refund in your books; the app handles sending the money back to the customer's account.
Frequently Asked Questions
What is the difference between a credit memo and a refund in QuickBooks?
A credit memo reduces what a customer owes you but does not move money out of your account. A refund is a credit memo plus an outgoing payment. You create the credit memo first, then convert it to a refund check or bank transfer so the money actually leaves your account and the customer receives it.
Can I refund a customer who paid with a credit card?
Yes. Create the refund in QuickBooks and select Credit Card as the method. QuickBooks records the reversal. You then process the actual refund through your card processor's dashboard (Stripe, Square, PayPal, etc.). The refund appears on the customer's card statement in three to five business days.
What happens if I refund more than the customer paid?
QuickBooks will show the customer with a credit balance — money you owe them. You can apply this credit to a future invoice, or you can write them a check for the difference. The credit stays on their account until you use it or refund it.
Do I need to create a credit memo before issuing a refund in QuickBooks Online?
No. In QuickBooks Online, you click the Refund button on the invoice and QuickBooks creates the credit memo and refund in one step. In QuickBooks Desktop, you must create the credit memo first, then convert it to a refund.
How do I record a refund if I do not know the customer's bank details?
Create the refund in QuickBooks and choose Check as the method. Print the check and mail it to the customer's address on file. If you need their bank details for a transfer, contact them directly before creating the refund.