How to deal with refunds and chargebacks, and what are credit notes?

Refunds of Company Expenses

If a company that charged you for a product or service issues a partial or full refund for any reason, here's how to proceed:

You will have received an initial invoice from that provider for the original amount your business was charged. Let's say it was for 1,000€, so you have an outgoing payment of 1,000€ and an invoice for that amount.

When they issue the refund for a certain amount, let's say 100€, you need to request a credit invoice from them for that amount. This credit invoice will typically show the negative amount (in this case, -100€) and will have a different invoice number. The description is usually something like "Refund for invoice XXXXXX".

Make sure to upload that credit invoice to the purchases section of Companio. Even though the amount is being refunded to you, it is not a sale, but a "negative" expense.

Refunds for your Customers and Unpaid Invoices

Unfortunately, all businesses will experience chargebacks or will need to make a refund to a customer eventually. Other times, some of your sales invoices may never be paid by your customers.

After a refund or a chargeback, you may not be sure what to do with the accounting. You charged the customer and issued an invoice, but the order was cancelled or refunded, or the chargeback occurred, and now that money is not in your account. Or perhaps you uploaded a sales invoices and sometime later you realize the customer won't pay for it for diverse reasons.

So what should you do with the invoice?

If you have already uploaded the invoice to the platform, no problem, you just have to issue a credit invoice to offset the refund or chargeback.

Whether it is a refund or a chargeback, the situation is the same: there is an initial payment from the customer, for example, €100, and you issue an invoice to the customer for €100, with the invoice number xxxx, which was paid to your company bank account.

Later, there is a chargeback or you refund all or part of the money to the customer. In both cases, you will issue a "credit" invoice. It is similar to a normal invoice but in negative numbers, and takes VAT or VAT into account if necessary.

If the refund is total, you’ll create an invoice with a different invoice number, yyyy, but with exactly the same customer data (name, address, registration code if it were a company, etc.), for €-100. You must specify "invoice xxxx refund" or "invoice xxxx chargeback" as the subject or item of the invoice.

If it was a partial return, for example, €20, you will issue an invoice for -€20.

Please note that if you applied VAT to the original invoice, the VAT must be added to the credit invoice. So if the invoice was €100 + €22 VAT (22%), if you return a total of €24.40, €20 is the subtotal and €4.40 is VAT, you will specify it on the invoice of credit. This means:

Subtotal: -20€
VAT (22%): -4.4€
Total (VAT included): -€24.4

After creating this credit invoice, you just have to upload it to the Companio platform in the sales section, as this is a "negative" sale, not an expense.

Updated on: 10/10/2024