Create and Use a Credit Memo

To create a credit memo for a customer, navigate to the Financial tab then choose 'Add New Credit Memo'  Here you will select the customer and the amount of the credit memo.

Once saved, you or the customer can use the credit memo by going to their dashboard and choosing an order to apply it to by simply putting in the amount you want to apply to the order (the same way you would if you were going to process a normal payment) and then selecting the Account Credit option in the payment method window. 

Keep in mind, that the credit applies IN FULL to the invoice you're applying it to. You can't split credit payments across multiple orders. Any remaining credit amount will still be available in the Account Credit payment method or display the remaining credit balance on the customer's dashboard.