When a Warranty Company chooses not to pay your dealership directly for warranty work completed, they may instead request that the outstanding Customer Invoice be converted into a Supplier Credit Note — effectively deducting what they owe you from what you owe them as a supplier. QuickBooks Online does not have a built-in way to convert a Customer Invoice directly into a Vendor/Supplier Credit Note, so this process uses a clearing account as an intermediary step.
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As an example: your dealership completed a Warranty Service Job for The Unit Company. The Invoice is sitting on The Unit Company's QuickBooks Online Customer Record as outstanding. The Unit Company is also one of your Suppliers/Vendors, and they want to offset what they owe you for the warranty work against what you owe them as a supplier — rather than paying you directly.
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Follow these three steps to transfer the Customer Invoice to a Supplier Credit Note.
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1. Create a new Chart of Account as a clearing account. In this example, a new liability account called Warranty Clearing has been created. If you already have a clearing account you use regularly, you can use that instead — but be aware that QuickBooks Online may require the clearing account to be a specific account type, such as Current Asset.
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2. Pay the relevant Customer Invoice to the clearing account. Open the Customer Invoice and record a payment, selecting your clearing account (for example, Warranty Clearing) as the payment account instead of a bank account.
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​3. Create a Supplier Credit Note against the same clearing account. Open the Vendor/Supplier record and create a Supplier Credit, selecting the same clearing account as the account used on the credit.
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When completed correctly, you should see the following: