14.23. Issue and Apply Credit Notes for MSP Client Billing

A credit note records that your MSP owes a client value back. The reason might be an over-charge, a goodwill adjustment, a returned product, or a corrected invoice. In AlgaPSA a finalized credit note does two things. It documents the adjustment, and it adds to the client's available credit balance. You can then apply that balance against open or future invoices. When QuickBooks Online is connected, credit notes export as QuickBooks credit memos, so the adjustment shows up in your books.

This guide covers how you create credit notes, how client credit is applied, and how both reach QuickBooks. You will find the credit-related views under Billing, alongside invoices and client billing settings.

Where client credit comes from

AlgaPSA tracks a running credit balance for each client. Credit is created in two ways.

Both raise the client's available credit. The difference is direction. A credit note is value you are giving back. A prepayment is money the client paid ahead.

Available credit is derived, not cached

A client's available credit is calculated from live credit tracking every time it is shown, rather than read from a stored balance figure. This matters because a cached balance can drift: the number on the client record, the number on the credit report, and the number applied to an invoice could disagree, and reconciling them meant deciding which one to trust.

They are now the same number by construction.

Credit held in your accounting system

Some MSPs hold client credit in their accounting system rather than in the PSA — the bookkeeper has the credit note, but it has not been entered in AlgaPSA yet. Until it is, the client looks delinquent on an invoice their credit already covers.

Annotate the client with an external-credit note to record that credit exists elsewhere. The annotation is visible where the client's credit is shown, so collections and the service desk do not chase a client who does not owe you anything.

An external-credit note is documentation, not a balance. It does not reduce an invoice — enter the credit note in AlgaPSA to do that.

Create a credit note

You create a credit note the same way as a manual invoice, but with negative amounts, so the total comes out below zero.

1. Go to Billing > Invoicing and start a Manual invoice for the client.
2. Add lines that describe the adjustment, using negative amounts. For example, a -$150.00 line credits a service that was over-billed.
3. Confirm the invoice total is negative.
4. Finalize the invoice.

When you finalize, AlgaPSA fixes the document's identity. Because the total is negative, AlgaPSA records it as a credit note, assigns the next CM- number from the credit-note sequence, and adds its value to the client's credit balance. AlgaPSA sets this identity once, at finalize time, so the later steps can rely on it. Those steps are credit application, QuickBooks export, and void handling.

Note: The invoice total decides the credit-note identity, not a separate document type. A finalized invoice with a negative total is a credit note. A finalized invoice with a positive total is a standard invoice.

Configure credit draw-down controls

Credit draw-down controls let an MSP decide whether available client credit should move onto new invoices automatically or wait for a billing administrator to apply it. Automatic draw-down keeps balances moving and reduces manual application work. Manual application keeps a billing administrator in the loop for every use — useful when credits need approval or should be reserved for a particular charge.

Figure 1: Tenant defaults. The application order decides which credit is consumed first when a client holds several.

A contract can also be taken out of the arrangement entirely: the contract's Overview carries an Exclude from credit draw-down field, which keeps that contract's invoices from consuming the client's balance. Use it for work that must be invoiced and paid separately from any credit the client is holding.

The controls have two scopes:

For the tenant default, go to Settings > Billing > General > Credit Draw-Down. The card sits between Credit Expiration and Renewal Automation and is described as Control when client credits are applied to invoices and how they are consumed. Configure:

• Automatically apply credit at finalization — when enabled, available credit is applied automatically when an invoice is finalized.
• Credit application order — choose Oldest credit first, Newest credit first, or Expiring soonest first. The stored default is Expiring soonest first.
• Eligible service types — choose All service types or Only selected types.

For one client, go to Client > Billing setup > Billing > General > Credit Draw-Down Settings. Use Default Settings means "Use the system-wide default settings for credit draw-down". Turn it off to configure the same automatic-application and order controls for that client. Eligible service types adds a third mode, Use tenant default, alongside All service types and Only selected types.

Apply credit to an invoice

You can apply available client credit to reduce what a client owes on an invoice.

• Automatically at finalization. When automatic draw-down is enabled for the tenant or the client's override, finalizing a standard invoice applies eligible credit in the configured order and reduces the amount due. An invoice that credit partly covers shows a partially applied status.
• With billing review. When automatic draw-down is disabled, the credit remains available until a billing administrator chooses to apply it.
• Credit history. AlgaPSA tracks each client's credit activity: credits earned, credits applied, current balance, and expiration. So you can see how a balance was built up and drawn down.

When credit is applied, the amount due drops accordingly, and AlgaPSA records the application against both the credit note and the target invoice.

Credit application is protected under concurrent use. If two people or processes try to apply credit at the same time, they cannot spend the same balance twice or reverse credit onto the wrong client. If you unfinalize a fully credited invoice, AlgaPSA returns the applied amount to that client's available credit balance.

Credit notes and QuickBooks Online

When QuickBooks Online is connected (see Connect QuickBooks Online), credit notes take part in the two-way sync.

Credit notes appear in the Finalized invoices list with their own CM- numbers and the same QuickBooks sync-status column as standard invoices. So you can confirm a credit memo exported correctly. If a credit application cannot be completed in QuickBooks, the sync raises a Credit application keeps failing in accounting exception. See Keep AlgaPSA and QuickBooks Online in Sync for how to resolve exceptions.

Best practices

• Describe the reason for the adjustment on the credit note's lines. The description carries through to QuickBooks and to the client's records.
• Apply existing credit before you collect new payment, so a client is not asked to pay an amount their credit already covers.
• Review each client's credit history before you issue a new credit note, so you do not duplicate an adjustment.
• When QuickBooks is connected, confirm the credit note reached QuickBooks as a credit memo (the sync-status column on the Finalized list) before you treat the adjustment as closed.

Related topics

• How Accounting Works in AlgaPSA — how credit notes fit alongside invoices, payments, and your books.
• Generating invoices — manual, automatic, and prepayment invoices.
• Review, finalize, and manage invoices — the draft and finalized lifecycle.
• Keep AlgaPSA and QuickBooks Online in Sync — how credit memos and their applications sync.