Allocate credit to invoices or bills

If you create a new credit note for a customer or supplier, or they have existing credit already, you need to allocate (or use up) that credit on invoices or bills. Credit can be allocated directly from a credit note, or from an invoice or bill.

If a customer or supplier has existing credit, Xero will prompt you when approving individual invoices or bills to see if you'd like to use the credit. You can also use credit from a prepayment or overpayment to pay an invoice or bill.

Allocating credit, however you do it, is the same for bills, invoices and credit notes. Depending on your preference, or the item you're approving, you can allocate credit from a credit note, or from a bill or invoice.

Elsewhere in Help Centre:

  Video: Purchase credit notes (2:18)

Credit can only be allocated for invoices, bills and credit notes that have been approved i.e. they have a status of Awaiting Payment. Go to Sales or Purchases and click on Awaiting Payment tab locate the invoice, bill or credit note you want to work with. Your user role determines your access to add, view and allocate credit.

Allocate a credit balance from a credit note

Choose credit note

Allocating a credit balance is the same for bills and invoices

You can also allocate credit from a bill or invoice

 

There are 2 ways to allocate a credit note to a bill or invoice - the allocation screen is the same, but the path to get there is slightly different. This process is very similar to credit allocation directly on a bill or invoice, but in this case you're primarily working with the credit note.

  • From an Awaiting Payment credit note, choose the 'Allocate Credit' option. In this case the amount of credit available may be the original credit note amount, or only part of it if some of the credit has already been allocated to a bill or invoice.

CNote

  • From a new or previously saved Draft or Awaiting Approval credit note (i.e. not directly from an invoice or bill), you will be prompted to allocate this credit when you click Approve, IF the customer or supplier has unpaid invoices or bills in Xero.

Approve CNote

Note: Neither of these options will be available f there are no outstanding invoices or bills for the customer or supplier (Awaiting Payment).

Allocate credit

Only approved (i.e. Awaiting Payment) invoices or bills can be credited. You can't credit a paid invoice or bill, or an invoice or bill still in draft.
Allocate Credit Balance

The screen for applying the credit note to an existing invoice or bill lets you choose which invoice or bill to apply the credit to and how much of the credit note you want to apply. This allocation screen is very similar to the allocation screen if you're finding credit notes to apply to an invoice or bill.

Allocate

  • A list of all unpaid invoices or bills for the customer or supplier will be displayed. These might have the full amount outstanding, or just part of the amount outstanding if payments or other credit notes have already been applied.
  • You can drill back into the credit note using the credit note link or into the invoice or bill available to credit using the invoice or bill link(s). If you need to check either of these, do it before you enter the amount to credit because when you leave this screen to follow links any amount entered won't be saved. If you haven't used reference numbers on your bills, the links will just say 'Bill'.

Links

  • Enter the amount of credit you want to apply to the invoice or bill - you can apply the entire credit balance (i.e. the amount of the credit note) or just some of it. The original amount and the amount remaining displays so that you know the effect the credit will have on the invoice or bill.

Balances

  • Xero will list all Awaiting Payment invoices or bills for the customer or supplier and you can allocate any amount of credit across one or more or all of the invoices or bills depending on how much the credit note is for and how much is outstanding.

Multiple invoices

  • As you enter the amount to credit this will be taken off the total available credit (i.e. the original amount of the credit note) and show how much credit will be left on the credit note after you've allocated an amount to the invoice(s) or bill(s). You can't enter a greater amount of credit than the outstanding credit note balance.

Totals

Click Allocate Credit to apply the credit amounts entered for the invoice(s) or bill(s):

Allocate

  • If the entire credit note amount is allocated, the credit note status changes to 'Paid' and it will be displayed on the Paid tab.
  • If only some of the credit note amount is allocated, the credit note status will remain as 'Awaiting Payment' and the credit balance can be allocated to another invoice or bill.
  • If you allocate enough credit to an invoice or bill to cover the amount due, the invoice or bill will move to the Paid tab with a balance of 0.00 outstanding, otherwise it will remain on the Awaiting Payment tab. Invoices or bills with credit allocated display an icon showing that a credit note is attached.

Credit note list

  • Click Cancel if you don't want to allocate credit at this time. If you were in the process of approving the credit note and have been prompted to allocate the credit to unpaid invoices or bills but don't want to, click Cancel to continue the credit note approval process - the full credit note will be saved to the Awaiting Payment tab. You can locate the credit note later to apply it to an invoice or bill, or next time you raise an invoice or bill for this customer or supplier Xero will prompt you to use unallocated credit if you wish.
  • If you approve invoices or bills in bulk from the Awaiting Approval tab, check for any outstanding credit notes that you could apply to the invoices or bills first, as you won't be prompted about outstanding credit when approving in bulk.

Allocate credit from a bill or invoice

Choose invoice or bill

Allocating a credit balance is the same for bills and invoices

There are 2 ways to allocate credit to an invoice or bill - the allocation screen is the same, but the path to get there is slightly different. This whole process is also very similar to credit allocation directly from a credit note, but in this case you're primarily working with the invoice or bill.

  • From an Awaiting Payment invoice or bill, choose the 'Credit this invoice' or 'Credit this bill' link above the payment panel. If the customer or supplier is in credit, the total credit available from all credit notes, overpayments or prepayments displays so that you know if you've got enough to apply the required credit to this invoice or bill. An invoice or bill that has already had credit or payments applied can still have more credit allocated.

Invoice

  • From a new or previously saved Draft or Awaiting Approval invoice or bill, when you click Approve, you will be prompted to use up any existing credit when you click Approve, IF the customer or supplier has unallocated credit in Xero (i.e. Awaiting Payment credit notes, prepayments or overpayments).

Approve invoice

Neither of these options will be available if there are no unallocated credit notes for the customer or supplier i.e. Awaiting Payment credit notes.

Awaiting Payment invoices or bills can also be credited directly off the invoice or bill without using up existing credit - click Invoice Options, then select Add Credit Note.

Add option

You cannot credit paid invoices or bills. Refer to our Common Credit Note scenarios below to see how you might handle a situation where credit is required for a paid invoice or bill.

Allocate credit

Only approved i.e. Awaiting Payment credit notes, prepayments and overpayments can be allocated.
Apply credit to the invoice or bill

The screen for allocating credit to an existing invoice or bill lets you choose how much credit from an existing credit note, overpayment or prepayment you want to use. This allocation screen is very similar to the allocation screen if you're finding invoices or bills to apply a credit note to.

Allocate cnote

  • A list of all unallocated credit notes, overpayments or prepayments for the customer or supplier will be displayed. These are Awaiting Payment items that have not yet been allocated - they might have their full amount unallocated, or just part of the original amount if some credit has already been allocated to other invoices or bills.
  • You can drill back into the invoice or bill to be credited using the invoice or bill link or into the credit note, overpayment or prepayment presented for allocation. If you need to check either of these, do it before you enter the amount to credit because when you leave this screen to follow links any amount entered won't be saved. If you haven't entered anything in the reference field on your supplier credit notes, the credit note links will just say 'Credit'.

Links

  • Enter the amount of credit you want to allocate from the item to the invoice or bill - you can apply the entire credit balance or just some of it.

Credit bal

  • Xero will list all Awaiting Payment credit notes, overpayments or prepayments for the customer or supplier and you can allocate any amount of credit from one or more of the items to the invoice or bill to reach the required amount to be credited on the invoice or bill.

Multiple CNotes

  • As you enter the amount of credit to use from each item this will be taken off the total amount due for the invoice or bill, showing you what the new outstanding balance will be after credit is applied. For each credit note available, you can only enter an amount up to the value of that credit note, and you can't enter a credit amount that is more than the remaining amount due on the invoice or bill.

Invoice totals

Click the Allocate Credit button to apply the credit amounts entered for the invoices or bills:

Allocate button

  • If the enough credit is allocated to reduce the amount due on the invoice or bill to 0.00, the invoice or bill status will change to 'Paid' and it will be displayed on the Paid tab. If the remaining due for the invoice or bill isn't fully credited, the invoice or bill will retain the 'Awaiting Payment' status.
  • If the full credit amount of a credit note is allocated to the invoice or bill, the credit note balance will be 0.00 and the credit note will be saved to the Paid tab. If the full credit amount isn't used, the credit note will remain in an 'Awaiting Payment' status and can be allocated to another invoice or bill later.
  • The credit will be applied to the invoice or bill as at the date of the credit note, unless the credit note is older than the invoice or bill in which case the credit will be applied on the invoice or bill date. This means you can use a credit note from a locked period if required regardless of your user role. If credit is allocated from more than one credit note, these will appear as separate credited amounts on the invoice or bill.

Invoice credits

  • Invoices or bills with credit allocated display an icon showing that a credit note is attached.

Credit note list

  • Click the Cancel button if you don't want to allocate credit at this time. If you were in the process of approving an invoice or bill and have been prompted to allocate existing credit but don't want to, click Cancel to continue the approval process - it will be saved to the Awaiting Payment tab with no credit applied. You can locate the invoice or bill later to allocate credit to it, or next time you raise a credit note for this customer or supplier Xero will prompt you to use it on an invoice or bill if you wish.