Question: Under the “supplier payments” section, when I try to record a payment to the supplier, I noticed a payment method called “Applied Supplier Credit”. What is the proper way of using/recording this payment method?
Let’s look at this by going through an example:
Example: Assume you had a booking with Air Canada (AC) with a net cost of $600. You paid Air Canada by cheque (or company credit card etc.). The customer then cancelled the booking and instead of receiving a refund back from AC, they gave you a credit of $600.
In this case, on the invoice (let’s call it invoice 76001), you would change the supplier net cost to 0 since the booking was cancelled. In the Supplier Payment section, you would leave the $600 already paid to AC (since you are not getting a refund). So the remaining balance due now shows as -$600 (i.e. they owe you).
Now, let’s say a month or two later, you do another booking with AC which has a net cost of $1000, and you want to use the $600 credit owing to you from AC on this booking and you paid AC a cheque of $400 for the remaining. To record this, create the new invoice (76002) with a net cost of $1000. In the Supplier Payment section, you would record the payment (method: Cash/Company Cheque) of $400 that you made. You would also record a second payment (Method: Applied Supplier Credit) for $600. So the remaining balance due will be 0.
One last thing you must do (which is the important part that people miss) is to go back to invoice 76001 (which still has a remaining balance due from supplier of -$600) and you need to record a payment (Method: Applied Supplier Credit) for -$600 (notice the negative sign). This will bring the remaining balance due on this invoice also down to 0.
So basically, the two “Applied Supplier Credit” payment under both invoices 76001 (-$600) and 76002 ($600) net each other out.