How to Credit Account in Freshbooks

What Are Credits in FreshBooks?

Credits in FreshBooks indicate that a client has an amount that can be applied as payment on future invoices. They come in three main forms:

• Credit Notes: Issued when you want to offer future services or items (for example, as a gift, reward, or refund) without first receiving a payment. Credit notes are used to create client incentives or store credits without the client paying first.
• Prepayment Credits: Used when a client voluntarily pays in advance for future services or products. These are beneficial if you require payment upfront and want to record that transaction properly.
• Overpayment Credits: Created when a client overpays an invoice. The amount paid beyond the invoice total is automatically credited to the client’s account for future use.

FreshBooks consolidates all these credit types into a single credit balance in the client’s profile. This balance can later be applied to any invoice dedicated to that client.

Why Use Credits on Your FreshBooks Account?

Using credits effectively in FreshBooks allows you to:

• Streamline Payment Adjustments: Whether it’s an overpayment or a voluntary prepayment, credits let you easily apply funds to a future invoice. This ensures you never have to refund money manually.
• Maintain Clear Financial Records: Every credit is recorded in your client's account and appears in dedicated reports, such as the Credit Balance report or in the Client Account Statement. This documentation is crucial for clarity in accounting.
• Improve Client Relationships: Offering credit notes or rewards builds trust and can incentivize clients to remain loyal. For instance, a credit note might be used as a loyalty reward or bonus for a customer.
• Save Time on Invoicing: By automating the credit process, you reduce the administrative tasks involved with manually tracking and applying payments.

Creating Different Types of Credits in FreshBooks

FreshBooks makes it simple to create credits through intuitive steps. Let’s break down how to create each type of credit.

1. Creating a Credit Note

A credit note is particularly useful if you want to supply an item or service to a client at a later date without needing them to pay immediately. This can work well for loyalty rewards, promotional offers, or even as a store credit.

Steps to Create a Credit Note:

1. In your FreshBooks account, click on the Create New button.
2. Select Credit from the drop-down options.
3. Choose the client for whom you want to issue the credit. If the client isn’t listed, you can use the + Create a Client option.
4. Under Settings, select Credit Type and choose Credit Note.
5. Pick the currency for this credit (if applicable) and adjust the Date of Issue if needed.
6. Optionally, modify the generated Credit Number (up to 10 alphanumeric characters).
7. Click Add a Line to include details of items or services, along with the rate and quantity.
8. Once all information is entered, click Save to finalize the credit note or Send… if you would like to email it directly to your client.

Remember, a prepayment credit can later be converted into a credit note by editing and changing the credit type in the Settings.

2. Creating a Prepayment Credit

Prepayment credits are used when your client pays in advance for a service or product. This keeps your records clear and ensures future invoices can reflect that the client has already made a payment.

Steps to Create a Prepayment Credit:

1. Click on the Create New button in your FreshBooks dashboard.
2. Select Credit and then choose the desired client.
3. Proceed to the Prepayment Credit screen and ensure the correct client is selected (or add one by clicking + Create a Client).
4. Under Settings, verify or change the currency if needed.
5. Set the Date of Issue to reflect when the payment was received.
6. Adjust the Credit Number if necessary.
7. Under Payment Method, choose the specific method the client used for prepayment (if not, it will default to Other).
8. Click Add a Line to record the details of items or services and their rates.
9. Click Save to create the prepayment credit, or choose Send… to notify the client via email.

The process is designed to be simple yet customizable so that you can match the transaction details accurately with the prepayment credit.

3. Recording an Overpayment Credit

Overpayment credits occur when a client pays more than the total amount on the invoice. FreshBooks automatically converts that extra payment into a credit that is added to the client’s balance.

Steps to Record an Overpayment Credit:

1. Navigate to the Invoices section in FreshBooks.
2. Open the invoice that is associated with the client.
3. Click on the More Actions button.
4. Select Add a Payment. Enter an amount that exceeds the outstanding invoice total (if the invoice is still pending, include both amounts).
5. A confirmation pop-up will show the amount credited to the client's account.
6. Click Add Payment. This credit now appears in the client’s profile for future transactions.

This automated process saves you time and ensures that extra payments are clearly tracked in the client’s account with no manual entry errors.

Managing and Adjusting Existing Credits

After credits have been created, you may need to view, edit, or delete them. FreshBooks offers multiple ways to handle credit management.

Viewing Credits

You can see all credits associated with a client in various ways:

• Clients List: In the client list, a credit column indicates any unused credit available.
• Client Profile: In the client’s profile, check the Available Credit section beneath the Outstanding Revenue graph. Hover over this area to view a breakdown.
• Credits Sub-Tab: Within a client’s profile, the Credits sub-tab lists all credits, regardless of whether they have been applied or not.
• Reports: Run a Credit Balance report to see a summary for all clients; you can also use the Client Account Statement and General Ledger reports for detailed entries.

Editing a Credit

To edit a credit (as long as it does not result in a negative balance):

1. Go to the Clients section.
2. Select the client whose credit you want to change.
3. Click on the Credits sub-tab.
4. Open the specific credit and click Edit.
5. Modify the amount, details, or credit number as needed.
6. Save the changes by clicking Save or Send… if you wish to email the updated credit.

Only certain elements can be changed depending on the credit type. For example, you can only edit the amount for an overpayment credit.

Deleting a Credit

If you need to remove a credit (ensure that deleting it will not result in a negative balance):

1. Go to the Clients section.
2. Select the specific client.
3. Open the Credits sub-tab.
4. Check the box next to the credit(s) you wish to remove.
5. Click the Bulk Actions button.
6. Select Delete. Confirm the deletion when prompted.

Note that once a credit is deleted, it cannot be recovered, so proceed with caution.

Applying Credits to Invoices

One of the main benefits of maintaining a credit balance is that you can easily apply it toward future invoices. There are a couple of ways to apply credits:

Applying Credit During Invoice Creation

1. In the Invoices section, either create a new invoice by clicking New Invoice or select an existing invoice and then click Edit.
2. Scroll to the Total and Amount Paid section; if a credit is available, you will see a link that says “Apply Credit ($xx.xx available).”
3. Click the link, and the full available credit is populated by default. You can change the applied amount by clicking inside the box and entering a different figure.
4. Click Apply. You will see that the Amount Due is instantly adjusted to reflect the credit.
5. Complete the rest of the invoice details and then save or send the invoice.

Applying Credit to an Existing Invoice

1. Open an invoice for a client with an available credit balance.
2. Click the More Actions button.
3. Choose Add a Payment. FreshBooks should automatically select the available credit.
4. In cases where the credit does not cover the full invoice total, you can manually enter additional payments to cover the outstanding balance.
5. You can also add payment notes to document the credit usage.
6. Click Add Payment to complete the process.

Automatically Applying Credits to Recurring Templates

FreshBooks also allows you to automatically apply credits when generating recurring invoices:

1. Under Advanced Preferences, go to Recurring Templates.
2. Toggle on the Automatically Apply Credits option.
3. Once enabled, every recurring invoice or retainer will use any available credits before charges are processed.

This feature is particularly useful for automated billing, ensuring that client credits are always accurately applied.

Best Practices for Managing Credits in FreshBooks

To optimize the credit management process in FreshBooks, consider the following tips:

• Regularly Review Credit Balances: Make it a habit to review client profiles and run Credit Balance reports to ensure that all credits are accurately recorded.
• Cross-Check With Invoices: When applying credits, double-check that the applied amount does not lead to a negative balance. If you need to adjust a credit, follow the edit steps outlined above.
• Use Automation for Recurring Invoices: If you have clients on recurring billing cycles, enable the automatic credit application to save time and reduce manual errors.
• Maintain Detailed Documentation: Always include a detailed description or note when creating a credit. This helps in future reference and when explaining credit entries to your accountant.
• Review Your Credits Periodically: If many credits are unused or if you notice discrepancies during the bank reconciliation process, investigate and audit any misapplications or potential errors.
• Communicate with Clients: Notify your clients when a credit note or prepayment credit is issued. Transparency helps build trust and clarifies how future invoices will be adjusted.

Common FAQs About Crediting Accounts in FreshBooks

Here are some frequently asked questions that can provide additional insights:

Q: Why can’t I apply sales tax to credits?
A: Sales tax can be added only to credit notes. For overpayment and prepayment credits, sales tax is not applied because no service has yet been provided.

Q: Why isn’t the Credit Number showing on the invoice payment?
A: Payments made from credits are deducted from the overall credit balance rather than from a specific credit note. To adjust a client’s credit balance, use the manage credits function to edit existing credits.

Q: Can a prepayment credit be converted into a credit note?
A: Yes, a prepayment credit can be converted by editing the credit and changing its type in the Settings.

Q: What happens if I over-edit a credit and bring the balance below zero?
A: Credits can only be edited as long as the new amount does not create a negative credit balance. This safeguard helps maintain accurate client records.

Q: How can I see a breakdown of all credits associated with a client?
A: View the client’s profile, check both the Available Credit section and the Credits sub-tab, or run a Credit Balance report for a comprehensive overview.

Frequently Asked Questions on Using Credits Effectively

Properly managing credits in FreshBooks not only keeps your books balanced but also improves client relations. Here are additional insights to help you leverage the credit features:

• How do credits improve cash flow?
  Credits simplify the process of applying extra payments to future invoices, ensuring that payment delays are minimized. They remove the need for separate refund processes, thus speeding up the balance adjustment for each client.
• What should I do if a credit has been used in full?
  Once a credit is fully applied, it cannot be edited. If any changes are necessary, you must create a new credit entry or adjust the subsequent invoice accordingly.
• Is there a limit to how many credits a client can have?
  There is no explicit limit; however, the credit balance must always be maintained as a positive figure. Negative balances are not permitted in FreshBooks, ensuring clarity for both you and your clients.
• Can credits be integrated with other accounting reports?
  Yes, all credit entries automatically generate journal entries, and you can view these details on reports like the General Ledger. This integration helps ensure that every transaction is tracked accurately.

Conclusion

Managing credits in FreshBooks is a vital element of maintaining clear and accurate financial records. Knowing how to credit account in FreshBooks can help you handle overpayments, prepayments, and credit notes confidently. The process is designed to be straightforward—create a credit note, prepayment, or overpayment credit; manage and edit these credits as needed; and easily apply them to future invoices.

By leveraging these features, you can improve client satisfaction, simplify reconciliation, and ensure that your business runs smoothly. Whether you’re offering loyalty rewards or simply adjusting a client’s account after an overpayment, FreshBooks provides the tools needed to keep your accounting streamlined and your financial records up to date.

If you have any questions about handling credits or need help configuring your FreshBooks account to align with your business needs, the FreshBooks support team is always ready to assist. Embrace the flexibility of credits and experience the ease that FreshBooks brings to managing your finances.

Implement these practices regularly and watch as your invoicing and credit management processes become more efficient. With a well-maintained credit system, you can foster better relationships with your clients, boost your cash flow, and spend less time on administrative tasks.

We hope this guide has provided you with actionable steps and practical insights on how to credit account in FreshBooks. Start applying what you’ve learned and enjoy a more streamlined accounting process today!