Credit Note to customer and then payment received


I have a new customer to whom terms were like I have to give him 25,000 cash beforehand (we can call it advance rebate) and then he will give me confirm 90,000 sale per month (through different invoices during the month). To give him cash, I did Spend Money and so cash credit, customer debit. Then I passed a credit note to offset this (specifying NO invoice in the credit note). Later, he paid for the invoice.

Now the credit note is getting offset against the invoice and the payment received is showing as Overpaid. What to do in this case? Snapshots attached for reference.


you do not have to issue a credit note.
a credit note is issued when you have a liability towards the customer.
in your case it is the opposite.

from your post i am assuming that the 25000 paid to the customer will stay with the customer as long as there is business and is not offset against any invoices made to them.

first, in your chart of accounts create a suitable account under Assets for Advance Rebate.
spend money with the customer entered as the Payee and Advance Rebate selected under the accounts column.
make the invoices and receive payments for them as usual.


No thats the difference. This 25k is the rebate on 90k sales but paid in advance. Sales comes later during the month, rebate given in advance. Next month will be 25k given again for next 90k sales. So invoices themselves are at full price zero discount and payment full received against invoice.

As invoice itself is fully settled in cash, how to prevent this credit note on the rebate from applying to invoices so they dont show overpaid?


First, as @sharpdrivetek already told you, a credit note is the wrong transaction entirely. Credit notes are for returns or adjustments on previously issues sales invoices.

Second, to avoid allocation of customer balances to future invoices, read this Guide:


If I understand you correctly, you pay the customer 25k in advance to receive future orders.
The customer places orders for 90k and fully pays you 90k. This process is repeated each month.

Then the 25k should be posted to a P&L expense account in accordance with your description “Rebates and discounts given”, and not posted to the Customers account at all.

As you are paying (rebating) the discount in cash instead of deducting it within the Sales Invoice itself so that it remains fully price. You would only put the 25k to a Balance Sheet account (including the Customers account) if you were going to be receiving it back at some future point.


This 25k is the discount to the particular customer and at end of month when i give statement, it will show invoice and payments at full price as well as this rebate given in advance.


Ok, so if you want the rebate to show on the statement as well then you need to process the credit note first each month and then do the payment, which will be allocated against the credit note to cancel it out then those items wont affect other invoices and payments.


Let me mention transaction steps and then pls let me know what you would do in this case.

  1. I give 25k to customer (advance rebate)
  2. I issue credit note to credit against this debit in customer account so it cancels the 25k advance rebate
  3. Invoices at full price 90k
  4. Payments received at full price 90k
  5. Statement to show full price invoice and receipts as well as advance rebate (unallocated to any invoice and offset by credit note or let me know alternate way)

Current problem is I pass unspecified 25k credit note to offset the 25k spend money transaction of advance rebate but instead, when invoices come later, it offsets the credit note against those invoices. When payment comes, it is also against those invoices which then show overpaid.


You need to reverse the above steps 1 & 2 - create the credit note first, this establishes the obligation / liability of the customer’s future discount, then create the Spend Money and allocate it to the Customer’s Accounts Receivable to cancel out the obligation of the credit note. If you do it in this order then it wont affect subsequent invoices / receipts.

And the Statement


Thanks man will try it soon and update.


Hi Brucanna and @lubos

Still facing same problem, I made date of credit note 1 day before the payment of the advance rebate as described above. Statement is now correct but the invoices still show overpaid as you can see in pics below.

How to avoid the invoices being marked as overpaid in the list of invoices in Manager?


are you selecting any invoice when making the credit note or when making the spend money transaction for 25000?
can you post screenshots of their edit screen?


No I am not selecting any invoice. Snapshots attached.


why have you created an inventory item for your rebates? creating an account alone will do.
also you have not shown the credit note screen completely. the invoice selection appears at the bottom.

when making the spend money transaction, select Accounts receivables as the account.


Item for rebate just a personal preference you can say, to standardize wording and tracking. This is my first file I setup in Manager so things are not ideal.

Default accounts receivable is selected, just that in my file I changed the name to Customer Control Account.

However, snapshot of the credit note is attached, invoice not selected you can see at the end.


Without knowing the actual date you posted the transactions into Manager its hard to comment, by this I mean, did the Sep 11 Credit Note get posted on Sep 11 or was it posted on Oct 18 but dated Sep 11 - which is what appears to have occurred based on the screenshots - as that Credit Note Sep 11 (posted Oct 18) has paid the two invoices that were outstanding on that date, being Oct 3 & Oct 18 and that is why those two are now overpaid.

If to had been processed on Sep 11, then it would have affected the Sep 13 & 19 invoices first if there was a problem but it hasn’t affected those invoices at all.

Therefore to resolve the overpaid status for those two invoices, go to their receipts dated Oct 19 & Nov 1 and delete the selection of the invoice number (leave blank).

Now, your Credit Notes could cause these issues if the Customer has a balance when it is created as it could be allocated to those outstanding invoices before the payment is processed - one way to avoid this conflict is not to select the Invoice no when processing the Receipt, this doesn’t prevent you from entering your descriptions.


If the item you createdfor rebates is an inventory item, your approach will distort your balance sheet, because a credit note adjusts quantities. If it is a non-inventory item, that will not happen.


@Tut Item is a non inventory item.

@Brucanna i tried deleting and recreating the credit note today (in back issue date after rebate payment but before invoice date). Still the software applies credit note before the payment. I think this has something to do with software logic which is fine in normal case, look for invoice, apply credit note to determine pending balance and then apply receipt.

Just that in my case, there is an advance rebate and since it is not an invoice, system is not detecting it as an item against which to offset the credit note.

@lubos can you please confirm my understanding and tell me how to resolve the issue. Deletion and recreation did not work.


@asifnwb - I clearly explained the cause and how to resolve your situation and “deletion and recreation” was definitely not part of that. Taking your action can only shift your problem to other invoices as all that you are doing is shifting the processing date and not the transaction date. The processing date (say Oct 18) can only react to the account’s status as at that day (Oct 18).

Yes, that is why transactions need to be done in transaction date order to apply correctly, if not, otherwise they will be applied based on account status at that date.

(1) Yes
(2) As already advised, you can’t amend historically.

The issue is only a temporary matter while you are setting up your processes.

Alternatively, to remove all the invoice overpaid conflicts you could create a 2nd customer account which only has the credit note and payment transactions and then issue the Customer with two statements.


I get your point and it is valid. But see, practically, it happens over and over again that you miss to enter one document, then you enter back dated transaction, specially if its the same month or reporting period or tax year, then every time the solution cannot be to delete all prior transactions and enter in date order from scratch for that customer. If anything goes wrong, numbers can get messed up pretty quickly as you can imagine.

What I am trying to say is in this post, [17.9.28] Improvements to automatic credit allocations there is the concept to leave over-payments as it is with that invoice only and not seek and auto-allocate to next outstanding invoice. System job is recording of transaction not auto guess right? So @lubos corrected it and its perfect.

Similarly, in case of credit note, if I don’t put an invoice number while making the credit note, it should not auto guess and apply itself to the next generated invoice (in date order). Further, in my case, as you rightly pointed out, I created the credit note later after invoicing and after receipt even and back dated it, at that point, 3 Oct invoice was already paid in full through normal Receive Money option on 19 Oct. Now once an invoice is marked as paid in full, then whether I enter a credit note or make any other adjustment and don’t refer to that invoice, Manager should not disturb the status of that invoice, right? I am just asking to prevent auto allocation of credit note to invoice irrespective of date.