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
- Administrator, Standard, Sales and purchases or Purchases user role
The Xero way
Where to find it: Purchases > Bills > New bill > New credit note
- In the Purchases menu, select Bills, click New bill, then select New credit note.
- Enter the supplier, date, lines and tax rates from the supplier's credit.
- Click Approve (or Save for a draft, or submit for approval).
- If the supplier has an awaiting payment bill, enter the amount to credit and click Allocate Credit. Or cancel and allocate later.
- To allocate later: Awaiting payment tab > open the credit > options > Allocate Credit > enter the amount against the bill > Allocate Credit.
- Or open an awaiting payment bill and under Bill Options select Add Credit Note. Approving it allocates it to that bill.
Limits in Xero
- You can only apply credit to awaiting payment bills, not to draft or paid bills.
- You can apply one credit to several bills, up to the credit total, and several credits to one bill, up to the outstanding amount.
- You cannot apply a credit to a bill in a locked period.
Good to know in Xero
- A credit not tied to a bill can be reconciled with Match. Xero records a payment on the credit and does not allocate it to a bill.
- When you approve a new bill for a supplier with credit on account, Xero prompts you to allocate it.
The Pulsify way
- Forward the supplier's credit note to your Pulsify address. Pulsify recognises it as a credit note.
- Pulsify flags a credit note with a missing or unknown original invoice, or an original smaller than the credit.
- Choose the original bill and approve.
- Pulsify creates the credit note in Xero against the original bill.
Pulsify connects to Xero in one click. Approved bills are created in Xero with the source file attached.
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.
Example in Xero
Example Plumbing Supplies issues one credit note of $660.00 that you split across two awaiting payment bills.
| Line | Amount | Tagged to |
|---|---|---|
| Credit note | $660.00 | Total to allocate |
| Allocated to INV-91 ($1,100.00) | $400.00 | Balance owing $700.00 |
| Allocated to INV-97 ($880.00) | $260.00 | Balance owing $620.00 |
The $660.00 credit is fully applied. Both bills stay awaiting payment with $1,320.00 still owing.
Common mistakes
- Approving a credit note and leaving it unallocated. It stays Awaiting Payment until it is fully applied.
- Trying to apply credit to a bill that is still a draft.
More help
- How to apply a supplier debit to a bill in AccountRight
- How to apply a supplier return to a bill in MYOB Business
- How to apply a purchase credit note to a purchase invoice in Sage 50
- How to match a bill to a purchase order in Xero
- How to put a disputed bill on hold in Xero
- All Xero how-to guides
- Pulsify setup guides
Sources
Last checked 2026-10-19. Confidence: confirmed.
Common questions
Can I apply one credit note to more than one bill?
Yes. You can apply one credit to several bills, up to the credit total. You can also apply several credits to one bill, up to the outstanding amount.
Can I apply a credit to a paid or draft bill?
No. You can only apply credit to awaiting payment bills, not to draft or paid bills.
What if the bill is in a locked period?
You cannot apply a credit to a bill in a locked period.
Does Pulsify read credit notes?
Yes. It recognises supplier credit notes and flags a missing or unknown original invoice.
Pulsify setup guides
Want this done for you?
Book a call to see how Pulsify handles supplier bills in Xero.