When a warranty company chooses not to pay the dealership directly for completed warranty work, they may instead deduct the amount owed from what the dealership owes them as a supplier. This article explains how to handle that in Xero using a clearing account, since Xero does not have a built-in function to convert a customer invoice directly into a supplier credit note.
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A common example of when this process applies:

Create a new chart of account in Xero to use as a clearing account. In this example, the account is named BP Warranty Clearing and is set up as a liability account. If you already have a clearing account, you can use it — but confirm that Xero accepts the account type for this process (for example, Xero may require a Current Asset account type in some configurations).
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When setting up the account, make sure the Enable payments to this account checkbox is ticked.
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Open the relevant customer invoice for the warranty work in Xero. Record a payment against the invoice, selecting BP Warranty Clearing as the payment account. In the Reference field, enter the credit note number received from the warranty company.
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Create a new credit note on the supplier's account in Xero. Use the same BP Warranty Clearing account as the account code on the credit note line.
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When the process is complete, you should see all three of the following: