You can auto-apply the credit memos generated to the unpaid or partially paid invoices. With this functionality, the already approved credit memos and credit memos created as part of the invoice run are auto-applied to the invoices. The Total Due Amount of the invoice line items is reduced and a Related A/R Transaction record is created to capture the transaction.
Use Case: Auto Applying Credit Memos
Description: This use case describes how credit memos are auto-applied during an invoice run batch job. You might use this functionality differently, depending on your business case.
Suppose you are a finance administrator of a company selling a product, Starkit. Starkit is billed recurringly with price as $10,000 per month. Your customer has bought this product for a term of 6 months and you have already invoiced your customer. The billing schedules are created as under:
| Billing Schedules | Start Date | End Date | Status |
|---|
| BS1 | 1/1/2019 | 1/31/2019 | Invoiced |
| BS2 | 2/1/2019 | 2/28/2019 | Invoiced |
| BS3 | 3/1/2019 | 3/31/2019 | Invoiced |
| BS4 | 4/1/2019 | 4/30/2019 | Invoiced |
| BS5 | 5/1/2019 | 5/31/2019 | Invoiced |
| BS6 | 6/1/2019 | 6/30/2019 | Invoiced |
Invoice Due Amount is $60,000.
If the price of the product reduces by 50% after three months, you need to return the customer $15,000.
Auto-Applying Credit Memos
- Perform Asset ammendments and activate the order to supersede BS4, BS5, and BS6 with negative billing schedules.
- Submit an invoice run. To auto-apply credit memos, set Auto Approve Credit Memo and Auto Apply Credit Memo as true when submitting an invoice run.
Result:
- Three credit memos are created with amount as $500 each
- Credit memos created are already applied to the invoice line items.
- Invoice Status changes to Partially Paid and Invoice Due Amount is reduced to $45,000.
Destination and Source Related A/R Transactions are created as under:
.
Order of Credit Memo Application
For a given account, you can specify the order of invoices to apply credit memos when submitting the invoice run.
Under processing options tab, select one of the following:
- Oldest Invoices 1st: Select this option to start auto-apply the credit memo from the oldest invoice first to the most recently created invoice.
- Most Recent Invoice 1st: Select this option to start auto-applying the credit memos from the most recently created invoices to the oldest invoice.
For an invoice, all the existing credit memos are applied before applying the newly created credit memos.