How to reconcile a partial refund in Xero
A common question from newer Xero users is how to reconcile where:
1. An invoice is issued and payment is received and reconciled.
2. At a later date a partial credit is required for the invoice and a cash refund made for the credited amount.
A credit cannot be added to a paid invoice, so it's not possible to immediately create a new credit and allocate to the invoice.
If you raise a new separate credit note and then refund it this will not connect to the original invoice so that doesn't work either.
How to do it
1. First, remove the payment from the original invoice it was reconciled to.
Search for the invoice and scroll down - you will see the Payment showing in blue.
Click on the blue which will take you into to the Payment transaction.
Use the top right Options button and then Remove and Redo. This will remove and delete the Payment transaction as if you hadn’t reconciled it. the payment statement line will re-appear on the dashboard ready to be reconciled again.
2. You can now add the credit to the invoice.
Find the invoice again, then use the Invoice Options button top right.
3. Reconcile the full Payment again but this time in two parts.
First find and match to the invoice and reconcile the reduced amount now due.
Second, you will then need to create a new transaction to account for the portion that has been credited. The most usual way to do this is to create an Overpayment.
4. Now it's time to deal with the refund.
First, find the Overpayment you just created (I do this through searching the Contact but there are other ways as well).
Scroll down and add a Payment to the Overpayment, including the bank account the money has been refunded from.
When you see the amount refunded appear as a bank statement line you can now match it to the Refund.