# How to apply a vendor credit note to a vendor invoice in Dynamics 365 Finance

In Dynamics 365 Finance, enter the vendor credit note for the vendor, then allocate it to the vendor invoice it credits. Pay the balance that is left.

Applying a supplier credit note means recording the credit and allocating it against the bill it reduces, so you pay only the balance.

## Before you start

- Accounts payable clerk

## The Dynamics 365 Finance way

Where to find it: Vendor invoice with negative amounts, then Settle transactions

1. Enter the credit note as an invoice with a credit amount against the vendor.
2. Open Settle transactions on the vendor.
3. Mark the credit note and the invoice and post the settlement.

## Limits in Dynamics 365 Finance

- Cash discount on a credit note can be applied during settlement.

## Good to know in Dynamics 365 Finance

- A global feature stores original invoice numbers on credit notes.

## The Pulsify way

1. Forward the supplier's credit note to your Pulsify address. Pulsify recognises it as a credit note.
2. Pulsify flags a credit note with a missing or unknown original invoice, or an original smaller than the credit.
3. Choose the original bill and approve.
4. Pulsify creates the credit note in Dynamics 365 Finance against the original bill.

Pulsify connects to Dynamics 365 Finance. We set up the connection for you.

What Pulsify does not do here:

- Pulsify does not handle partial allocation across several bills.
- Credit note handling is limited to the cases listed above.

## Common mistakes

- Entering the credit note but never settling it, so it and the invoice both stay open.
- Marking the wrong invoice in Settle transactions before posting the settlement.

## Common questions

### How do I enter a vendor credit note?

Enter it as an invoice with a credit amount against the vendor. Microsoft documents settling credit notes.

### How do I apply a credit note to an invoice?

Open Settle transactions on the vendor. Mark the credit note and the invoice, then post the settlement.

### Can the cash discount apply to a credit note?

Yes. Cash discount on a credit note can be applied during settlement. A global feature stores original invoice numbers on credit notes.

### Does Pulsify read credit notes?

Yes. It recognises supplier credit notes and flags a missing or unknown original invoice.

## Sources

- https://learn.microsoft.com/en-us/dynamics365/finance/accounts-payable/settle-partial-vendor-payment-discounts-vendor-credit-notes
- https://learn.microsoft.com/en-us/dynamics365/finance/accounts-payable/gbl-original-invoice-numbers-credit-notes-ap

Source: https://www.pulsify.tech/how-to/apply-a-supplier-credit-note-in-dynamics-365-finance/ (last checked 2026-10-19)