Chargebacks

A chargeback is an invoice that reduces the amount owed to a vendor. If an invoice amount is greater than the receipt amount, you can process this difference in two ways:

  • Pay the invoice in full and post the difference to a tolerance account to be written off.
  • Create a chargeback invoice to the vendor for the difference.

A chargeback reduces the amount owed to the vendor and states the reason for the reduction. With a chargeback, the payment is made to the vendor without waiting for a credit memo.

For example, you have a contract with a vendor to purchase 10 units of an item with a unit cost of $10. The expected invoice total is $100. You receive an invoice with an item cost of $10.25 and total cost of $102.50. A chargeback invoice is created for $2.50, which is the difference between the ordered cost and the invoice cost.

Chargebacks are useful to charge back an invoice overage so that responsibility shifts to the vendor. Chargebacks can be created automatically. To create a credit memo toward the original invoice, then you should not use chargebacks often.