Creating A/R Credit Memo to Reduce Billing for Returned Goods Without Replacement

An A/R Credit Memo is a document used to record reductions in customer billing in various situations, such as returned goods, additional discounts, corrections to invoice errors, or other conditions affecting transaction value. This document is crucial for aligning billing with the actual transaction conditions, ensuring the company’s financial records remain accurate.

In the context of returned goods, the A/R Credit Memo is used to record price reductions for returned goods, whether or not the customer requests replacement goods. Additionally, this document serves to reduce customer billing before payment is made for the related A/R Invoice. This article outlines the process of creating an A/R Credit Memo in SAP Business One, where a customer reports damaged goods after an A/R Invoice has been issued. The customer then returns the damaged goods but does not request replacements.

Process Flow for Creating an A/R Credit Memo

Case Example: A customer orders 10 sheets of Plastik ABS 30 cm x 30 cm, and all items have been delivered. The billing (A/R Invoice) has also been issued and sent to the customer. However, 3 sheets were found to be damaged. The customer requests that the damaged goods not be replaced, so a price reduction must be made on the issued invoice.

1. Initial Document Creation The following are the initial documents created when receiving a customer order:
   • Sales Order: Used to record the customer’s order.
   • Delivery: Used to record the delivery of goods to the customer according to the Sales Order.
   • A/R Invoice: Once the goods are received, the invoice is created to record the amount the customer must pay.
2. Returning Goods After A/R Invoice Issuance
   If the goods are damaged and the customer wants to return them without requesting replacements, the following steps are performed:
   • Manually create a Sales Return since the related document is already closed. To create a Sales Return, navigate to Sales – A/R > Return.
   • Enter the customer data and details of the returned goods.
   • Attach the Sales Order or Delivery document to the Return document to show the relationship between the Sales Return and the initial customer order documents by using Referenced Document
   • Save the completed Return document.

   

3. Creating an A/R Credit Memo After the Sales Return document is created, the next step is to create an A/R Credit Memo to record the reduction in the customer’s billing amount. This process ensures that changes in transaction value are accurately recorded in the accounting system.
   • Open the Sales – A/R > A/R Credit Memo
   • Enter the customer data for whom the billing amount will be reduced.
   • Click the Copy From button, then select Return to automatically pull data from the Sales Return document.
   • Review the prefilled data, and if everything is correct, save the document.

   

4. Creating Incoming Payment
   After creating the A/R Credit Memo, the next step is to record the customer’s payment.
   • Navigate to Banking > Incoming Payment.
   • Enter the customer data, and the related invoice documents will be displayed.
   • Check the boxes for the A/R Invoice and A/R Credit Memo. The total amount payable by the customer will be displayed, reflecting the price reduction based on the A/R Credit Memo.
   • Save the Incoming Payment document to record the payment received.

   

5. Viewing Document Relationships Using the Relationship Map
   Several documents have been created, including the Sales Order, Delivery, A/R Invoice, Return, A/R Credit Memo, and Incoming Payment. If users want to view the relationships between these documents, they can use the Relationship Map feature. To display the Relationship Map, right-click on the document you wish to examine and select Relationship Map.
   
   Relationship Map also allows users to view relationships between documents linked through the Referenced Document feature. Detailed instructions can be accessed through the following link.
   

 

Through the A/R Credit Memo process, returned goods can be accurately recorded, reduced customer billing can be efficiently managed, and financial records remain accurate. With a clear understanding of how the A/R Credit Memo works and the utilization of the Relationship Map feature provided by SAP B1, companies can minimize errors in transaction recording and support smooth financial audits.

 

Also read:

• Credit Memo from Closed (Paid) AR Invoice
• Cancelling Closed A/R Credit Memo
• Credit Memo without Affecting Inventory
• Give Users a Limit the Amount of Cash on Incoming Payment
• Preview Your Incoming or Outgoing Payment Draft