(From> A credit memo is a contraction of the term "credit memorandum," which is a document issued by the seller of goods or services to the buyer, reducing the amount that the buyer owes to the seller under the terms of an earlier invoice.  The credit memo usually includes details of exactly why the amount stated on the memo has been issued, which can be used later to aggregate information about credit memos to determine why the seller is issuing them.

To create a credit memo you simply create an invoice with a negative quantity for the order and invoice quantity on the line item (the unit price is never negative).  Your accounting team should have already established a service item code and description to be used in these cases.  An example of a service item code that would be appropriate would be DISCALLOW along with a default description of Discounts and allowances.  The line description will be replaced or appended with the description of why you are currently applying a credit on the customer's account.  In the case your company has multiple divisions the code and description should include a prefix indicating the division.  

There are some cases in which you may want to create an internal credit memo and do not want it to be sent out to the customer.  In this case you would go to the orders Invoice tab, click the edit button and then check the boxes for the is sent via postal and the is sent via online options.  This will prevent the credit memo from being sent out to the customer.

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