Definition
A refund is money a business returns to a customer for a payment already made, in full or in part, because goods were returned, a service was cancelled, the customer was overcharged, or as a goodwill gesture. On the books, a refund is usually documented with a credit note that reverses the original invoice amount.
Also called: Payment refund, Money back
Refund in practice
Refund the payment through the same method it was made where possible. Card refunds go back to the original card, and many processors do not return their original processing fee, so the refund can cost the business more than the sale earned.
Issue a credit note referencing the original invoice, so both sides' records show why the revenue and any tax were reduced. Then record the refund payment against the credit note.
A clear refund policy on quotes and invoices, covering deposits, cancellations, and partial work, prevents many disputes before they start.
Example
A client cancels a $900 workshop booking two weeks ahead. The trainer issues credit note CN-014 for $900 against invoice INV-0233 and refunds the payment to the client's card.
Frequently Asked Questions
Is a refund the same as a credit note?
No. A credit note is the document that reduces or cancels the amount owed. A refund is the actual money returned. A credit note can also be kept as credit for future invoices instead of refunded.
Are deposits refundable?
Only if your terms say so. State clearly on the quote or contract whether deposits are refundable and under which conditions, so the client agrees before paying.
Related terms
- Credit note A credit note is a document a seller issues to reduce or cancel the amount owed on a previously issued invoice.
- Chargeback A chargeback is the reversal of a card payment initiated by the cardholder's bank after the customer disputes the charge.
- Overpayment An overpayment occurs when a client pays more than the amount due on an invoice, for example by paying twice, paying the wrong invoice, or rounding up.
- Deposit A deposit is a partial payment made before work begins or goods are delivered, typically 25 to 50 percent of the total.
This page is for general information only and is not legal, tax, or financial advice. Rules change and vary by location, so consult a qualified lawyer or accountant about your situation.