What are Credits and Refunds? And how do you apply them?
Introduction
In COS Business Engine, refunds and credits serve different purposes in customer account management:
- Refund: Returns money directly to the customer’s payment method (such as a credit card or bank account).
- Credit: Adds funds to the customer’s account balance within COS Business Engine, to be automatically used for future invoices. This guide explains the difference, shows their relationship to invoice balances, and provides step-by-step instructions with real-world examples.
Key Differences
Refund |
Credit |
|
Definition |
Money is sent back to the customer’s original payment method. |
Money is held as available funds in the customer’s COS account for future use. |
When Used |
Only for paid invoices (customer has already paid). |
For unpaid invoices or as goodwill, adjustments, etc. Also used to offset invoice balances after a refund. |
Customer Experience |
Customer sees money returned on their card/bank. |
Customer sees an account balance, used to pay future invoices or to reduce current invoice amounts. |
How to Apply |
From the Invoice’s Payments tab (for paid invoices). |
From the Customer record, using “Add Credit”. |
How Refunds Affect Invoice Balance
When you issue a refund on a paid invoice, the payment is returned to the customer—but this also re-opens (increases) the invoice’s amount due.
This means:
- The invoice will now show an unpaid or partially unpaid balance, since the payment was removed.
- You can apply a credit to the invoice to cover all or part of the new balance, if desired.
- Without a credit or new payment, the customer will owe the refunded amount again.
Typical sequence:
- Refund payment: Money returned, invoice shows new amount due.
- Apply credit: (Optional) Use a credit to reduce or clear the amount due on the invoice.
This relationship is crucial when correcting invoices or making adjustments, and prevents the customer from being left with an unexpected open balance.
Processing a Refund
A refund is always a reversal of an actual payment.
Steps:
- Go to the relevant Invoice in the system.
- Switch to the Payments tab.
- If the invoice is fully paid, you will see the “Refund” button.
- Click Refund and follow the prompts to return the payment to the customer’s original payment method (credit card, bank account, etc).
What Happens Next:
- The refunded amount is removed as a payment from the invoice.
- The invoice’s amount due will increase by the refunded sum.
- You can optionally apply a credit to cover the invoice (see “Adding a Credit”).
Adding a Credit
A credit increases the customer’s available balance in COS. It does NOT return money to their card/bank.
Steps:
- Go to the Customer record.
- Click the Create customer credit button on the money dropdown list.
- Copy from a Transaction Template if needed (configured under Settings > Billing > Transaction Templates).
- Templates control whether the credit is positive or negative, and any associated notes.
4. Enter the credit amount and save.
How Credits Work:
- The credit amount is stored as Available Funds in the customer’s COS account.
- These funds can be automatically applied to new or existing invoice balances or used on the customer’s autopay date. No manual action is required to use credits on future invoices.
- After a refund (which increases an invoice’s amount due), you may immediately apply a credit to decrease or clear the amount due.
Real-World Scenarios: Using Credits and Refunds
A. Full Refund for Overpayment
Scenario:
A customer accidentally pays the same invoice twice.
How to Handle:
Refund the duplicate payment directly to the customer’s payment method.
Steps:
- Go to the paid invoice.
- On the Payments tab, locate the duplicate payment.
- Click Refund and process it to return funds to the customer.
Result:
The invoice remains paid and closed if the original payment covers the invoice. If you refund both payments, the invoice re-opens as unpaid.
B. Partial Refund to a Customer (Price Adjustment)
Scenario:
A customer is due a partial refund after an overcharge or service adjustment.
How to Handle:
If you need to refund only a portion of the payment and leave a balance for future use, you’ll use both refund and credit. Steps:
- Refund the original payment from the invoice (returns funds to customer). The invoice’s amount due increases by the refunded sum.
- Add a credit for the correct invoice amount to the customer’s account. The credit can be immediately used to reduce or eliminate the amount due on the invoice.
- Create a new payment for the correct amount, or allow the credit to be automatically applied on the next invoice.
Example:
- Invoice total: $100
- Customer paid: $100
- You owe the customer a $30 refund
- Refund $100, add $70 credit
- Invoice will show $100 due. The $70 credit is automatically applied, so the customer owes only $30 now, or the balance can be handled as preferred.
When to Use:
- When adjusting an invoice after payment and needing a precise, auditable correction.
C. Issuing Goodwill Credit (No Refund)
Scenario:
A customer experiences a service outage and you wish to offer a goodwill gesture.
How to Handle:
- Add a credit to the customer’s account. No money is refunded.
Steps:
- Go to the customer record.
- Click Add Credit and enter the desired amount.
- Save. The credit will be automatically applied to future invoices.
FAQ
Q: I want to put money back on the customer’s card. What do I do?
A: Issue a refund from the paid invoice’s Payments tab. Note: this will increase the amount due on the invoice, so consider if a credit is needed to adjust the balance.
Q: I want to give the customer a balance they can use later.
A: Add a credit to their customer record.
Q: Can I refund an unpaid invoice?
A: No, you can only apply a credit to an unpaid invoice. Refunds require an actual payment to have occurred.
Q: Can a credit be refunded to a payment method later?
A: No. Credits can only be applied to future invoices within COS; they cannot be withdrawn as cash or refunded.
Q: What happens to the invoice if I issue a refund?
A: The invoice’s amount due increases by the refunded amount. To clear the balance, apply a credit or accept a new payment.
Scenario Summary Table
Scenario |
Use Refund? |
Use Credit? |
Notes |
Duplicate payment |
Yes |
No |
Refund the extra payment |
Overcharge/Partial refund + balance forward |
Yes |
Yes |
Refund then credit, then collect correct amount; use credit to adjust invoice balance |
Service issue/goodwill |
No |
Yes |
Credit only |