How to Unapply a Credit in QuickBooks

When a customer overpays an invoice or a credit memo gets applied to the wrong transaction, QuickBooks may link a credit automatically without asking. Unapplying that credit lets you reassign it correctly, issue a refund, or write it off. This guide covers how to unapply a credit in QuickBooks Desktop and QuickBooks Online, including how to locate credit memos, remove credits from invoices, and remove vendor credits from bills.

What Does Unapplying a Credit Mean in QuickBooks?

In QuickBooks, a credit can take several forms: a credit memo issued to a customer, a vendor credit received from a supplier, or an overpayment that QuickBooks converts into a credit automatically. When QuickBooks applies a credit to an invoice or a bill, it reduces the balance owed on that transaction.

Unapplying a credit means removing that link between the credit and the invoice or bill it was applied to. The credit does not disappear; it returns to an open, unapplied state so you can decide what to do with it next. That might mean applying it to a different invoice, issuing a refund, or writing it off entirely.

QuickBooks Desktop applies credits automatically during payment processing when it detects an open credit that matches the customer or vendor. QuickBooks Online does the same in certain workflows. This automation is helpful most of the time, but it can create problems when the wrong credit gets linked or when a customer wants their overpayment refunded rather than applied forward.

When You Need to Unapply a Credit

There are several common situations where removing an applied credit is necessary:

• A customer overpaid an invoice and wants a refund rather than a credit applied to a future invoice
• QuickBooks automatically applied a credit memo to the wrong invoice
• You applied a vendor credit to the wrong bill and need to move it to the correct one
• A credit memo was created in error and needs to be voided, but it is currently applied to a transaction
• Your accountant needs a clean audit trail with specific credits matched to specific invoices

Understanding which scenario applies to your situation helps you choose the right method below.

How to Find Credit Memos in QuickBooks Desktop

Before unapplying anything, you need to locate the credit memo or payment credit in question. Here is how to view all open and applied credit memos:

1. Go to Reports in the top menu bar
2. Select Customers & Receivables
3. Click Transaction List by Customer
4. Click Customize Report in the upper left
5. Go to the Filters tab
6. In the Choose Filter search box, type Transaction Type
7. From the Transaction Type dropdown, select Credit Memo
8. Click OK

The report now shows all credit memos across every customer. You can filter by date range or customer name to narrow it down. Note the customer name and credit memo amount before proceeding to the steps below.

Unapply a Customer Credit in QuickBooks Desktop

This method removes a credit that was applied to a customer invoice. It works whether the credit was applied manually or automatically by QuickBooks.

Method 1: Through the Receive Payments Window

1. Go to Customers in the top menu bar and select Receive Payments
2. In the Received From field, select the customer whose credit you want to unapply
3. The payment window shows all open invoices and any credits applied. Look for the invoice that has the credit attached
4. Click the invoice to highlight it
5. In the credits section at the bottom, uncheck the checkbox next to the credit memo you want to remove
6. Click Save and Close

The credit is now unapplied and returns to an open status. You can verify this by running the Transaction List by Customer report again.

Method 2: Through Transaction History

Use this method when you know the specific invoice and want to unapply directly from it.

1. Press Ctrl + H on your keyboard to open the transaction history window
2. Locate the invoice that has the credit applied to it and double-click it to open it
3. Click Apply Credits at the bottom of the invoice window
4. The Previously Applied Credits window appears, showing all credits currently linked to this invoice
5. Uncheck the checkbox next to the credit you want to remove
6. Click Done
7. On the invoice, click Save and Close

The credit is detached from the invoice and is now available to apply elsewhere or to refund.

Unapply a Customer Credit in QuickBooks Online

QuickBooks Online handles credits slightly differently. Credits are typically applied through the invoice view or through the payment record.

Removing a Credit Applied to an Invoice

1. Go to Sales in the left navigation panel and select Invoices
2. Find and open the invoice that has the credit applied
3. Scroll down to the Credits section of the invoice. You will see the credit memo listed with a checkmark
4. Uncheck the credit memo to remove it from this invoice
5. Click Save and close

If the credit was applied through a payment record rather than directly on the invoice:

1. Go to Sales and select All Sales
2. Filter by Payment type and find the payment that includes the credit
3. Open the payment record
4. In the payment window, locate the credit in the lower section and uncheck it
5. Click Save and close

The credit memo or overpayment is now unapplied and shows as an open credit on the customer account.

Remove a Vendor Credit from a Bill in QuickBooks Desktop

Vendor credits work differently from customer credits. QuickBooks Desktop does not have a direct "unapply" button for vendor credits. Instead, you use a two-step conversion process to detach the credit from the bill.

1. Go to Vendors in the top menu bar and select Vendor Center
2. Find and open the vendor credit you want to unapply
3. On the vendor credit form, change the transaction type from Credit to Bill by clicking the Bill radio button at the top
4. Click Save and Close
5. A message asks whether you want to record the changes. Click Yes
6. Now find the bill you just created (it will appear in the vendor's transaction list with the same date and amount)
7. Open the bill and change the transaction type back from Bill to Credit by clicking the Credit radio button
8. Click Save and Close
9. Click Yes when prompted to confirm the change

This cycle detaches the original credit from the bill it was applied to. The vendor credit returns to open status and can be applied to the correct bill.

Remove a Vendor Credit from a Bill in QuickBooks Online

1. Go to Expenses in the left navigation panel and select Vendors
2. Select the vendor and open their transaction list
3. Find the bill that the vendor credit is applied to and open it
4. Scroll down to the Credits section at the bottom of the bill
5. Uncheck the vendor credit to remove it
6. Click Save and close

The vendor credit returns to unapplied status and will appear as an available credit the next time you process a payment to that vendor.

What to Do After Unapplying the Credit

Once the credit is unapplied, you have four main options:

Option 1: Apply it to a different invoice or bill. Open the target invoice or bill, go to the credits section, and check the credit to link it. This is the most common reason for unapplying in the first place.

Option 2: Issue a refund to the customer. Go to Customers > Create Credit Memos/Refunds in QuickBooks Desktop, or + New > Refund Receipt in QuickBooks Online. Link the open credit memo to generate a refund check or credit to the customer's payment method.

Option 3: Write off the credit via journal entry. If the credit is small and the customer does not need a refund, you can write it off. Create a journal entry debiting the accounts receivable account for the customer and crediting your income or write-off account. Then apply the journal entry to the credit memo to close it out.

Option 4: Leave the credit open. If you are not sure yet, leaving the credit as an unapplied open credit is fine. It will appear on the customer's account until you resolve it.

Common Mistakes to Avoid

Deleting the credit memo instead of unapplying it. Deleting a credit memo removes it entirely from your books, which affects your audit trail and can throw off your accounts receivable balance. Unapplying is the correct approach unless the credit was created in error.

Unapplying and reapplying in the wrong fiscal period. If the credit was applied in a prior period that has already been reconciled or reported, unapplying it can affect previously closed books. Talk to your accountant before touching credits in closed periods.

Forgetting to follow up. After unapplying, the credit sits open. If you do not apply it somewhere or issue a refund, it will distort your accounts receivable aging report over time.

Confusing credit memos with discounts. A discount applied to an invoice is not the same as a credit memo. Discounts cannot be unapplied in the same way; they must be edited directly on the invoice.

Troubleshooting: Credit Will Not Unapply

If you attempt to unapply a credit and the option is greyed out or the change does not save, consider these causes:

• The accounting period is closed. QuickBooks prevents changes to transactions in closed periods. Check Edit > Preferences > Accounting > Company Preferences and review your closing date.
• The invoice or credit is reconciled. Reconciled transactions are locked. You would need to un-reconcile the transaction first, which should only be done with your accountant's guidance.
• You do not have the correct user permissions. QuickBooks user roles can restrict who can edit or unapply transactions. An admin user will need to make the change or adjust your permissions under Company > Set Up Users and Passwords.
• The credit is part of a batch payment. If the credit was included in a batch payment deposit, you may need to un-deposit it first before the unapply option becomes available.

When to Call Support

If you have followed the steps above and the credit still cannot be unapplied, or if your accounts receivable balance does not match after the change, contact QuickBooks support directly. You can reach a QuickBooks specialist through QuickBooks support phone number or through the in-product Help menu under Help > QuickBooks Desktop Help.

Reasons to escalate to support:

• The credit memo is stuck in a reconciled state and you cannot un-reconcile without breaking your bank reconciliation
• Your accounts receivable balance changed unexpectedly after unapplying
• The credit appears unapplied in reports but the invoice still shows as paid in full
• You are on a managed payroll or accountant version with restricted edit access