Credit Memos, Claims, Returns, and Refunds

Credit Memos

Credit memos, claims and returns are processed almost identically to regular orders and invoices. The only significant differences are:

On the Order Header

Enter C in the Type field of the Order Header Record. This will change the pick list heading to indicate that document is a credit or return authorization, and change the invoice heading to indicate that the document is a credit memo. If you omit the C from the Type field, the credit will still function correctly; only the heading is affected.
Enter at least one cross reference in the Xref Invoice# and Xref Order# fields of the Order Header Screen. We recommend that you enter both numbers. This links the credit with its related invoice or order numbers.
Entering cross reference numbers for invoices and orders indicates to the system to give you options to automatically issue credits based on the items previously ordered.

Green Screen Order Header

Navigator Order Header

On the Order Detail

Entering a manual credit would include a negative quantity using Field Minus after the right-most digit when entering the item for return.
On the Order Detail screen, enter Y or N in the Receive? field to indicate whether or not the quantity entered is to be returned to stock.
Also on the Order Detail screen, optionally enter or override the Restocking Charge% to apply to credit memo.
Enter a credit reason code in the C/C field (Crdt/Cmsn Code in Navigator).

Green Screen Order Detail Screen

Navigator Order Detail Screen (accessed by clicking the option arrow to the left of an item)

Processing Credits

Credits may be processed using any of the methods available for processing orders and invoices. Valid methods include the following:

Enter credit via Order Entry system using order type C and print as a pick list (which will be labeled Credit/Return Authorization) or order acknowledgment. Much like an open order awaiting shipment, this open order credit could be used to prepare for the return of the material and issuing of the credit memo. Material is marked so that it will not be received into stock before it has been inspected. When the goods are returned, the pick list is used as a receiving document. At this time the order can be updated, so when invoiced, the material is automatically added back to stock. The pick list is then invoiced (processed via the Invoicing system, exactly as a regular order would be processed), resulting in a credit memo. Listings of outstanding/open credits/claims can be obtained using the Open Order reports, specifying to include credits only.
Enter credit via Order Entry system, and use F9 to process as a credit memo and bypass the open order stage. F9 is used to directly produce an invoice without first producing a pick list or open order. Each workstation control panel has an option to enable or disable a userâ€™s ability to use the F9 invoice function.
Enter credit by using the Invoicing Open Orders Program, and accessing the original order number to which the credit relates. You must enter C in the Type field of the Invoicing Program Header Screen. This causes all lines from the original order whether open, shipped or cancelled, to be displayed by the Invoicing Program. It will also cause the invoice heading to indicate that the document is a credit memo. On the Header Screen, you should also enter a cross reference invoice number which should be the originally billed invoice number. You would then press F4 to delete lines that are not being credited, and enter negative quantities on the lines you want to credit. You can add, delete, or change lines from the original order as needed. You can explain the credit memo using the miscellaneous comment fields on the F6 Screen. This method has the advantage of linking the credit to the original order by order number. The Accounts Receivable Ledger by Order Number (F2 on the AR Ledger Screen) will line up the credit under any open invoices or advance deposits for the order number. A complete history of all transactions related to the order is easy to follow using this method. An additional advantage is that you do not have to enter header information, item numbers, and original prices since they are recalled automatically by the Invoicing Program.

Restocking Charges

Credits can have restocking charges applied automatically. Management can use the Control Panel to enter a default restocking charge percentage for each terminal. This percentage can be accepted or overridden on a line-by-line basis while processing the credit memo. The total restocking charges for a credit memo are included in the Handling Charge section of the invoice, which is discussed later in this document. A restocking charge of 25% on a $100.00 return would result in a $25.00 restocking charge, and a credit amount of $75.00. Restocking Charge% is displayed or overridden on the bottom of the Detail Line Screen of Order Entry.

Returns

When material is being returned by a customer, you can specify Y in the Recv? field of Order Entry for the system to automatically add the return back into inventory. You can also specify N to not have the item added back into inventory. In most circumstances, we recommend that you use the N option in the Recv? field, thereby separating the inventory aspects of a return from the billing aspects. This method enables you to inspect the product and to receive it back using the Receipts or Adjustment Programs when it physically arrives at your location. The arrival time often does not coincide with the time that the credit must be issued to the customer.

Any negative quantity on a pick list or packing list causes Return to appear on the document. You can use the picking or packing list as a return authorization document. Entering a C in the Order Header Type field causes the document to be labeled Credit/Return Authorization.

Following is a summary of methods for handling returns:

A return authorization is issued via Order Entry with a C in the Order Header Type field and an N in the Recv? field. The picking list prints as a return authorization and the material is returned to the warehouse. After inspection, the N in the Recv? field is changed to Y. Inventory is adjusted when the return authorization is invoiced.
The material is returned prior to issuing a credit memo. The credit memo is then created using the Y option in the Recv? field to update inventory.
The return authorization and subsequent credit memo only use the N in the Recv? field. All inventory updates are done using the Receipts or Adjustments Program.

Suggested Methods for Credits Due to Incorrectly Priced Item

Credit each item using two separate lines. On the first line, enter credit for the item with the original price (the incorrect price). Enter original quantity using Field Minus to make it negative. Enter Y in the Receive? Field, as if the item will be returned to stock. Also enter a credit reason code in the C/C field. On the next line, enter the item again, also with the original quantity; but this time the quantity is a positive number, and the new/correct price is entered. This method will keep all system statistics accurate and will best reflect what actually happened. The credit memo will clearly display the price correction. Inventory is unchanged and gross profit margins remain precise. This method should be used in the Invoicing Program. This is the method we recommend.
You can also enter the credit by entering a single detail line with the original quantity as a negative, and the difference in unit price as the unit price. In this case, be sure to remove the cost, using Field Exit, as there is no cost to this transaction, only a change in price. To remove cost, first enter the negative quantity and press Enter. Then you can override the price and Field Exit through the cost. This method maintains the accuracy of all system gross profit statistics. Specify N in the Recv? field so that inventory is unaffected. The only statistics affected are quantities on detailed sales reports such as X by Y Reports. Therefore, if you use this method you may need to omit credits from certain reports for the most accurate results.
Another alternative method is to use an F6 (miscellaneous) line to credit the difference, and include an explanation. The F6 line should have a negative extended price entered, but no cost because cost and inventory are not affected. This method will properly credit the customer, but not allocate the credited quantity or value to the item(s) to which it relates. F6 lines also do not affect any statistics for products, such as gross profits. This method is recommended for small or insignificant amounts.

Managing Claims

Claims can be managed using the following systems:

Claims Using the Order Entry System
Managing Claims Using the AP, AR, or Event Management Systems
Claims Management System

Each of the above methods has distinct advantages and disadvantages. The primary driver of which system to use is normally the department that will manage the claims. For example, if your accounts payable department manages claims, they are likely to prefer using the Accounts Payable System because they are likely more familiar with it than with other systems.

Claims Using the Order Entry System

Claims are entered exactly like credit memos and managed like open orders. Using this method, all claims are part of your order and sales statistics. All Open Order Reports and Order History Reports allow you to specify Credits/Claims Only. You may want to further segregate claims from regular orders and credit memos by creating a warehouse code to be used by all claims, such as warehouse number CLM. Then, on each claim, use that warehouse code on all Header and Detail screens. The term claim refers to credits that involve both a customer seeking credit from your company and your company seeking credit in turn from your supplier or manufacturer. Usually, the material has already been used or installed, and there is no return to stock. The claim might include request for reimbursement of labor or other charges related to removing and/or replacing the product.

Use the following guidelines in managing claims within the Order Entry system:

Enter claim as a credit using Order Entry. Follow instructions for entering credit memos. Enter all material, labor, and other changes using detail and F6 lines. Remember that all quantities, extended prices and costs should show as negative. Use the Customer PO# field to enter a reference that will enable easy tracing of the claim, such as claim form number for manufacturer. Also use the cross reference number fields to link the claim to an original invoice and order number.
Print claims as an order acknowledgment. You can omit this step if you will work only from the open order screens and reports.
Complete the manufacturer's or supplier's claim form or use the order acknowledgment to make the claim to your supplier or manufacturer.
Track outstanding claims by customer, manufacturer, item, date, or salesperson by using the Open Orders Reports and specifying include credits/claims only. Outstanding claims can also be searched and displayed like all other orders using the Order Search and Inquiry Program. Specifying status C on the Order Search will limit the search to credits and claims only. You can update claims, cancel claims, and so on. All functions available for orders are available for claims.
When supplier or manufacturer responds to the claim:
- Use the updated acknowledgment to be approved and signed by management. At that time, the actual amounts to be received from supplier and issued to customer should be determined, and the open claim should be updated.
- Invoice the claim, which issues credit to the customer and closes out the open claim.
Use the order notepad at all stages of the claiming process. You can also use the order status codes to notate the stage of completion, and you can assign your own meaning to the codes. For example, use code P for claim paperwork received by supplier/manufacturer. We recommend that you use status codes K, D, J, P, and R only to avoid confusion with status codes that indicate physical movement in your warehouse. These codes are normally used for tracking purchase orders and back orders. They can be consistently applied to claim tracking.
When you have issued the claim to the supplier or manufacturer, or when they indicate the amount of settlement, you should make sure that you can track the amount due from the supplier. You can use the steps outlined above to keep track of the open claims, but the amount due from the supplier may be better tracked by using the Accounts Payable (AP), Accounts Receivable (AR), or Event Management Systems. Your accounting department must decide these issues. You can set up AR accounts for each supplier and track like any other unpaid invoice, or you can enter debit memos against the supplierâ€™s AP account. When using AR to track claims, you can create actual invoices to your suppliers or simply use the Manual Sales Entry Program on the AR Menu. This method allows you to generate aging reports and statements to suppliers. When using AP debit memos, you can fully integrate them with the other AP entries or each supplierâ€™s account. You can also use all features on the AP System. In either of these scenarios, you can intermingle with your normal corporate accounting, or you can set up a special company number just for claims tracking.

Managing Claims Using the AP, AR, or Event Management Systems

If you use either the AP, AR, or Event Management Systems as your primary system for tracking claims, then you should follow these basic steps:

1. Enter a record in your system of choice indicating the expected credit from your supplier.

2. Issue a credit memo to your customer when the credit is resolved by the supplier.

Refunds

Refunds can be processed from the Order Desk or the AR and AP menus. The actual recording of the refund would be processed via AR by applying the amount, as a negative entry, with an RF code against a previously posted credit memo or payment. It is then applied to a general ledger account number. Your accounting department may also process the refund as a disbursement through the AP system. However, the accounting department must insure that refunds are not recorded twice in the general ledger. This would occur if both the AR entry and the AP entry were posted to the cash account of the GL. We advise that your accounting department institute a consistent method of recording refunds.

Issuing Refunds at the Order Desk

If you issue refunds at the Order Desk (using the Order Desk Menu), use the following procedures:

If the order was processed but NOT invoiced, and advance deposit was taken:

Select option 11, Open Order Search and Inquiry, on the Order Desk Menu.
Enter the order number in the Order Number field on the first screen.
Press F6. The Order Changes Screen appears. Cancel or change order, if necessary.
Press F7. The Print Selection and Cash Receipts Screen appears.
Enter the amount to be refunded in both the Amount To Pay and the Amount Received fields using Field Minus. Refunds must be entered as negative numbers. Enter the method of payment code: CA if cash is given to customer; CH if check; MC if Master Card refund, and so on. Enter the order number and reason for refund in the Other Reference field. Press Enter. Then, press one of the listed function keys. The refund is recorded and prints on Order Desk Cash Receipts Reports, which are used to balance cash receipts. Refund entries, like any entries recorded on the Order Desk Cash Receipts screens, are never posted automatically to AR. They are first reviewed and balanced by the order desk manager or accounting department, and then posted.

If the order was invoiced and paid, and credit memo was previously issued.

Follow steps 1 - 3 if part of order is still open, and cancel the order, if necessary.
Follow instructions 4 - 5 in the preceding example.

If the order was invoiced and paid, but NO credit memo was issued.

If part of order is still open, cancel the order, if necessary.
Select option 16, Invoice Open Orders, on the Order Desk Menu.
Enter order number and process credit memo, with exact prices and quantities being credited. (Remember to type C in the Header Record and to use Field Minus for negatives.)
Follow instructions 4 - 5 in the above example.

If an order has not yet been invoiced, then the cancelled or changed order is the corresponding transaction that backs up the refund of an advance deposit. If an order has been invoiced, then a credit memo must be created to back up the refund.