How to Track Vendor Credits in QuickBooks (Before You Lose Hundreds in Unclaimed Refunds)
I recently helped a client reconcile their vendor accounts and discovered $3,400 in vendor credits they’d completely forgotten about. The credits were sitting there—valid, available, ready to use—but they’d never been properly recorded in QuickBooks.
They’d paid full price on recent orders when they could have applied those credits. Money just left on the table.
After 30+ years of bookkeeping, I can tell you this happens more often than you’d think. Vendors issue credits for returns, overpayments, or billing errors—and if you don’t track them properly in QuickBooks, you’ll never remember to use them.
Let me show you exactly how to enter vendor credits so you never lose money on unclaimed refunds again.
Why Vendor Credits Matter
Vendor credits represent money you’re owed. Think of them as prepaid discounts on future purchases.
Common reasons vendors issue credits:
- You returned damaged or incorrect products
- They overcharged you and issued a correction
- You overpaid an invoice
- They’re compensating for poor service or delays
- You negotiated a discount or rebate
If you don’t track these credits in QuickBooks, you’ll:
- Pay full price when you should be applying credits
- Lose track of what vendors owe you
- Double-pay when credits expire unused
- Miss out on hundreds or thousands in available refunds
How to Enter a Vendor Credit in QuickBooks
The process is straightforward—but you need to do it immediately when you receive the credit, or you’ll forget.
Step 1: Access the Vendor Credit Form
Click the + Create button (top of screen), then under Vendors select Vendor credit.
Step 2: Enter Vendor Information
Choose your vendor from the dropdown. Let’s say you received a credit from “Bamboo Juices.”
Step 3: Enter Credit Details
Date: The date the vendor issued the credit (not when you’re entering it—use the actual credit date for accurate records)
Credit number: Enter the reference number from the vendor’s credit memo. In this example, we’ll use “1234.”
Why this matters: When you’re trying to track down credits months later, you need the vendor’s reference number. Without it, you’re guessing.
Step 4: Categorize the Credit
Choose the appropriate expense category. This should match the category of the original expense.
For example:
- If the original purchase was categorized as “Office Supplies,” the credit should be too
- If it was “Commissions and Fees,” categorize the credit the same way
Why matching matters: Your expense reports need to be accurate. If you spent $1,000 on office supplies but got a $200 credit, your true expense is $800—but only if both are categorized correctly.
Step 5: Enter the Amount
Input the credit amount. In our example, it’s $500.
Step 6: Save the Credit
Click Save and Close.
Verifying the Credit Was Recorded
Now let’s make sure QuickBooks actually saved your credit where you can use it.
Navigate to Expenses:
- Click Expenses in the left sidebar
- Select Vendors
- Click on your vendor name (Bamboo Juices in our example)
You should see the $500 credit listed in their account.
This is critical: If you don’t see the credit here, it wasn’t recorded properly. Go back and check your entries.
Applying the Credit to Future Payments
Here’s where the magic happens—and where most people mess up.
The next time you pay this vendor, QuickBooks will automatically prompt you to apply available credits. But you need to actually apply them.
Common mistake: People rush through bill payments and ignore the credit prompt. Then they pay full price when they should have deducted the credit.
Pro tip: Before paying any vendor bill, check their account for available credits. Make it a habit.
Real-World Example: The Cost of Ignoring Credits
A construction client ordered $8,000 in materials from their lumber supplier. The order arrived with $1,200 worth of damaged materials, which they returned.
The supplier issued a credit memo for $1,200.
My client put the credit memo in a pile of papers and forgot about it. Three months later, they placed another $6,000 order with the same supplier and paid the full amount.
They could have paid $4,800 ($6,000 minus the $1,200 credit), but they paid $6,000 because they forgot to apply the credit.
Money lost: $1,200—sitting there as an unused credit that eventually expired.
If they’d entered the credit in QuickBooks immediately, the system would have reminded them when processing the next payment.
Additional Tips for Managing Vendor Credits
1. Enter Credits Immediately
Don’t wait until month-end or reconciliation. Enter vendor credits the day you receive them.
The longer you wait, the more likely you’ll forget—or lose the paperwork.
2. Keep the Credit Memo Documentation
Attach the vendor’s credit memo to the QuickBooks transaction or file it where you can find it.
If there’s ever a dispute about whether a credit was issued or applied, you need that documentation.
3. Review Vendor Credits During Reconciliation
When reconciling vendor accounts, check for:
- Credits that haven’t been applied
- Credits approaching expiration dates
- Duplicate credits (sometimes mistakes happen)
4. Watch for Expiration Dates
Some vendor credits expire after 90 days, 6 months, or a year. Note expiration dates and set reminders to use credits before they disappear.
5. Communicate with Your Accounts Payable Team
If you have a team handling bill payments, make sure they know about available credits. Don’t let credits sit unused because of poor internal communication.
The Bottom Line
Vendor credits are real money—money you’ve already paid that you’re entitled to get back.
Not tracking them properly is the same as throwing cash in the trash.
Take these two actions today:
- Enter any outstanding vendor credits sitting on your desk right now
- Review your vendor accounts for old credits you might have forgotten
Five minutes of data entry can save you hundreds or thousands in duplicate payments.
Your vendors aren’t going to remind you about credits you haven’t used. That’s your job—and QuickBooks makes it easy if you actually use the system correctly.