Cancel Pending Invoice or Debit Note

When you want to cancel a pending invoice or debit note. This article explains how the cancellation process works, including how credit notes are created, how payments are adjusted, and how bad debt scenarios are handled.

In this answer, we have explained how the system works internally when an Invoice or Debit Note is cancelled. You can cancel a pending Debit Note from the List View or Details View of an Invoice or Debit Note.

In a true sense, there is nothing like canceling an Invoice or Debit Note. Once entered, a transaction cannot be deleted; it can only be settled. Therefore, the Cancellation process, in a nutshell, simply creates a Credit Note of the same amount as the Invoice/Debit Note and settles it with the Invoice/Debit note in question. Let's understand this in greater detail.

Both an Invoice and a Debit Note consist of the following fields:

Invoice/Debit Note Amount: This is the Invoice or Debit Note amount.
Pending Amount: This is the amount of payment pending on this Invoice or Debit Note.

The above amounts will be stored in dual currency if your Selling Currency differs from your Accounting Currency.

Invoice/Debit Note Cancellation

Let's discuss in detail the process of canceling a single partly paid Invoice. This example covers every aspect of Invoice Cancellation. Debit Note Cancellation works in the same fashion.

Let's take a dummy Invoice for Customer A with the following figures -

Transaction ID: 1
Invoice Amount: USD 100 (INR 5000)
Pending Amount: USD 25 (INR 1250)
Conversion Rate: 50

Note the following points about the above Invoice:

As you can see, the above Invoice is partly paid in USD 75 (since the Pending Amount is USD 25 while the Invoice Amount is USD 100).
The Selling Currency in this example is USD, and the Accounting Currency is INR.
The conversion rate between these currencies is taken as 50. This is the conversion rate at which the Invoice was entered or created manually or by the System.

Now, if you confirm the Cancellation of this Invoice, the system will automatically create a Credit Note and balance it against the Invoice, resulting in the following final status -

Transaction ID: 1
Invoice Amount: USD 100 (INR 5000)
Pending Amount: USD 0 (INR 0)
Conversion Rate: 50

Transaction ID: 2
Credit Note Description: Cancellation of Transaction ID 1
Credit Note Amount: USD 100 (INR 5000)
Credit Note Pending Amount: USD 75 (INR 3750)
Conversion Rate: 50

There are a few essential points to note in the above transaction:

The system adds and balances the credit note in a single step. The Customer cannot use the credit note to balance any other Invoice. The Credit Note is created to cancel the particular chosen Invoice.
When a partially paid Invoice is cancelled in this fashion, the pending amount will be fully paid, and the System will return the amount originally available to the Customer's Debit account.
The transaction would work exactly the same if you had a Debit Note instead of an Invoice or a Credit note instead of a Receipt.
Customers can cancel an Invoice from their interface if it has an associated Request. In this case, the Invoice and the Associated Request will be cancelled.
A cancelled Invoice will never show a Forex Gain/Loss since the Credit Note is raised at the same Conversion rate as the Invoice.

The following are a few pointers:

The process of cancelling an Invoice or debit Note as a Bad Debt is exactly the same as a normal cancellation.
The system adds and balances the credit note in a single step. The customer cannot use the Credit note to balance any other Invoice or debit Note. The Credit Note is created to cancel the particular chosen Invoice or debit Note.
When a partially paid Invoice/Debit Note is cancelled in this fashion, the amount of the pending Invoice/Debit Note will be fully paid. If you decide that the amount that was originally paid should be returned to the Customer's debit account, you will have to manually create a credit note.
If, however, the entire Invoice was pending (i.e., out of the Invoice amount of USD 100 if the complete USD 100 was pending), then the Credit Note that would be created would be of the entire USD 100.
The transaction would work exactly the same if you had a Debit Note instead of an Invoice or a Credit note instead of a Receipt.
Customers can cancel an Invoice from their interface if it has an associated Request. In this case, the Invoice and the Associated Request will be cancelled.
A cancelled Invoice will never show a Forex Gain/Loss since the Credit Note is raised at the same Conversion rate as the Invoice.

Cancelling an Invoice/Debit Note as Bad Debt

Let's take another example here:

Suppose your Customer Roy has the following Pending Invoice -

Transaction ID: 1
Invoice Amount: USD 100 (INR 5000)
Pending Amount: USD 20 (INR 1000)
Conversion Rate: 50

In the above example, you will notice the following:

The above Invoice is partly paid (since the Pending Amount is USD 20 while the Invoice Amount is USD 100).
The Selling Currency in this example is USD, and the Accounting Currency is INR.
The conversion rate between both these currencies is taken as 50. This conversion rate is the conversion rate at which the Invoice was entered or created manually or by the System.

If your Customer Roy refuses to pay the pending USD 20 to you, you may settle/balance this transaction as a bad debt -

Transaction ID: 2
Credit Note Description: Bad Debts Credit on Transaction ID 1
Credit Note Amount: USD 20 (INR 1000)
Credit Note Pending Amount: USD 20 (INR 1000)
Conversion Rate: 50

The system will now balance this Credit Note against the Invoice, resulting in the below final status -

Transaction ID: 1
Invoice Amount: USD 100 (INR 5000)
Pending Amount: USD 0 (INR 0)

Transaction ID: 2
Credit Note Description: Bad Debts Credit on Transaction ID 1
Credit Note Amount: USD 20 (INR 1000)
Credit Note Pending Amount: USD 0 (INR 0)
Conversion Rate: 50

The following are a few pointers:

The process of cancelling an Invoice/Debit Note as Bad Debt is exactly the same as a normal cancellation.
The Credit Note is added and balanced in a single step by the system. There is no way that the Credit note can be used by the Customer to balance any other Invoice/Debit Note. The Credit Note is created to cancel the particular chosen Invoice/Debit Note.
When a partially paid Invoice/Debit Note is cancelled in this fashion, the amount of the Invoice/Debit Note that is pending will be fully paid this way. You will have to manually create a Credit Note if you decide that the amount that was originally paid should be returned back to the Customer's debit account.
If, however, the entire Invoice was pending (i.e., out of the Invoice amount of USD 100 if the complete USD 100 was pending), then the Credit Note that would be created would be of the entire USD 100.
The transaction would work in exactly the same fashion if you had a Debit Note instead of an Invoice, or a Credit note instead of the Receipt.
Customers can cancel an Invoice from their interface as long as it has an associated Request. In this case, both the Invoice and the Associated Request will get cancelled.
A cancelled Invoice will never show a Forex Gain/Loss since the Credit Note is raised at the exact same Conversion rate as the Invoice.

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