Category: Business CentralRead time: 5 MinsPublished on: 24 Nov 2025

How to create credit memos in Business Central

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In Microsoft Dynamics 365 Business Central, Credit Memos are essential tools for correcting financial transactions. They reverse or adjust posted invoices when returns, rebates, or billing errors occur.

When used correctly, credit memos ensure accuracy in your ledgers, maintain traceability for audits, and simplify the process of issuing refunds or vendor credits. In this guide, we’ll cover what credit memos are, how to create and apply them.

As certified Business Central consultants, we help businesses streamline their finance processes, keeping every correction as precise and traceable as the original transaction.

1. What is a Credit Memo in Business Central?

A Credit Memo in Business Central is an official document that reverses all or part of a posted invoice. It ensures all financial and inventory records stay accurate after corrections.

  • Sales Credit Memo - Reduces the amount a customer owes when goods are returned or overcharged.
  • Purchase Credit Memo - reduces the amount you owe a vendor when you return goods or are overbilled.

For example, if a customer was invoiced ₹1,00,000 but returns goods worth ₹20,000, a sales credit memo is created for ₹20,000. Once posted and applied, that customer’s outstanding balance decreases accordingly, and inventory is updated if items were returned.

Unlike unposted documents, once an invoice is posted in Business Central, it can’t be edited directly. Instead, a credit memo serves as the official reversal document, ensuring every correction is recorded and traceable.

2. How Credit Memos Work in Business Central

When you post a credit memo, Business Central generates reversing entries that offset the original invoice.

  • On the sales side, it reduces the customer’s Accounts Receivable.
  • On the purchase side, it decreases the vendor’s Accounts Payable.

Each credit memo must apply to a specific invoice, so the system knows which transaction to reverse. This linkage guarantees accurate financial reconciliation and audit trails.

3. How to Configure Sales Credit Memo in Business Central

Scenario -

Imagine you sold 10 laptops to a customer for ₹50,000 each, and later the customer returns 2 due to screen issues.

Navigation & Setup -
  • In the Business Central search bar, type and choose “Sales Credit Memo”.
  • In this page, use the ‘New’ action to create a sales credit memo by copying a document.

    Note: We can also create a credit memo by using ‘Create corrective credit memo’ in the posted sales invoice.

    A sample screenshot of Business Central system displaying the process of creating a sales credit memo.
  • Use the ‘Copy Document’ action under the ‘Prepare’ section to apply the entries from the sales document.
    A sample screenshot of Business Central application showing steps in configuring sales credit memo.
  • Here, for example, we are using a posted invoice to apply the lines to this credit memo.
    A sample screenshot of steps involved in sales credit memo process creation in Business Central application.
  • Here, we can see the lines applied from the chosen sales document.
    A sample screenshot of sales credit memo in Business Central application.
  • We can use the post action from the sales credit memo to reverse the transactions/shipments.

4. How to Configure Purchase Credit Memo in Business Central

Scenario -

You purchased 100 printers from a vendor, but 5 of them were damaged. You contact the vendor, and they have agreed to a return.

Navigation & Setup -
  • In the Business Central search bar, type and choose “Purchase Credit Memo”.
  • On this page, use the ‘New’ action to create a purchase credit memo by copying a document.

    Note: We can also create a credit memo by using the ‘Correct’ action in the posted purchase invoice.

    A sample screenshot of Business Central system displaying the process of creating a purchase credit memo.
  • Use the ‘Copy Document’ action under the ‘Prepare’ section to apply the entries from the purchase document.

    Note: After copying, enter a ‘Vendor Cr. Memo Number’.

    A sample screenshot of Business Central application showing steps in configuring purchase credit memo.
  • Here, for example, we are using a purchase order to apply the lines to this credit memo.
    A sample screenshot of steps involved in purchase credit memo process creation in Business Central application.
  • Here, we can see the lines applied from the chosen purchase order. We can use the post action from the purchase credit memo to cancel the invoice and reverse the shipments.
    A sample screenshot of purchase credit memo in Business Central application.

5. Best Practices for Managing Credit Memos in Business Central

To maintain accuracy and control:

  • Always apply credit memos to the related invoices before posting.
  • Use approval workflows for oversight, especially for high-value credits.
  • Regularly reconcile open credits in customer and vendor ledgers.
  • Automate repetitive processes via APIs or Power Automate.
  • Maintain clear documentation to support audits and reporting.

6. Credit Memos in Business Central Help Maintain Financial Integrity

Credit memos allow you to correct mistakes, manage returns, and ensure ledgers remain clean, while maintaining an auditable history of every change.

Business Central’s flexibility makes the process straightforward:

  • Create a credit memo directly or manually.
  • Apply it to the right invoice.
  • Post confidently knowing that ledgers and inventory stay in sync.
  • Optionally route through approvals or integrate via APIs for automation.

Talk to our experts if your organization needs help setting up credit memo workflows, automation, or integrations.