There may be times when you need to give a client a refund in relation to a bill. This usually result in a credit note also being issued.
This article explains what you need to process a refund to a client - either through the client bank or office bank - and also how to clear the residual outstanding balance on the bill.
📌Note: This guide is for situations where a bill is partially or fully paid. If the money that your client has given you is in the client account, and hasn't been used to pay a bill, then simply post a Client Payment to return the money to them.
Refunds through the client's bank account
If you've paid - or plan to pay - your refund through the client's bank account, you need to ensure that you've credited the client's bank account with funds from the office bank account otherwise, a payment would take the client ledger into debit, which isn't allowed.
The client ledger balance will now be as it was when starting the process however, there will be a new office balance and a new outstanding bill value. To resolve this, an office credit note should be raised.
Post an Office-to-Client Transfer for the full gross value of the refund.
Allocate the transfer against the bill which you're refunding.
If this bill is fully paid, then on the allocation screen select Specify from All Bills.
Click the Allocated column then enter the value of the refund.
This needs to be a negative number, as you're essentially unpaying the bill. This shows the bill as having an outstanding value which is a positive figure.
Ensure the To Allocate figure at the bottom is zero.
Click OK, then confirm you wish to update the file.
You need to physically move money from the office bank to the client bank to complete the process.
Post a payment for the full value of the refund against the client's matter.
You can then make the actual payment to them, through the method of your choice. The client ledger balance is now as it was when starting the process however, there'll be a new office balance and a new outstanding bill value. To resolve this, you need to raise an office credit note.
Refunds from the office bank
If you want to refund your client directly from the office bank, you can simply post an office payment and allocate this against the bill as above.
It's important to ensure that you're able to allocate office payments against bills. To check this, follow the steps below:
From the Tools menu, click Options.
Click the Accounting tab.
Select the Office Payment Can Offset Bills check box.
📌Note: Ensure that if you're posting an office payment you enter the refund value in the Value box only, leaving the VAT code field empty and having no VAT value. Entering a VAT code or VAT value could adversely affect your VAT return.
Credit the outstanding bill value
Once you post the refund, you need to deal with the residual outstanding bill office value:
In Accounts Desktop, click the Credit Notes tab.
Enter the matter details.
Select the bill reference you need to credit.
If the bill was fully paid before the refund, then click C then select Credit Outstanding.
The profit costs, disbursements and expense fields automatically populate with values.
If the bill was partially paid before the refund, then click the C then select Manual Credit.
You then need to enter the amounts of fees and VAT you're refunding.
Click OK/Next to post the credit note, then enter a reference and description.
If you want to physically print a credit note to give to the client, select the Produce Credit Note check box. This requires your system to be set up for Credit Note production).
The office ledger and client ledger are now back to the position they were in before the refund was posted. Ensure that the amounts paid and transferred through the above processes are physically replicated with the bank accounts in question.