Magento order refunds step by step

To refund an item in an order, you’ll need to create a credit memo. There are two ways to do this, depending on how the invoice was created.

If the order was placed using a payment method that automatically creates invoices (like PayPal or a credit card gateway in authorize and capture mode), or if it was placed using a method that doesn’t accept any actual payment information (like “pay by check”), you’ll need to click the “Credit Memo” button on the main order information screen to create a credit memo.

If the order was placed using a credit card gateway in authorize only mode, and you created the invoice(s) for the order manually, you’ll need to first click on the invoice that contains the payment you want to refund (under Invoices), and click on the “Credit Memo” button from within the invoice.

In the credit memo you can update the quantities of items to refund. You can check the “Return to Stock” checkbox, if you are using Magento to keep track of stock. In the “Refund Totals” box you can also elect to refund shipping, and add or subtract custom amounts (such as adding an after-the-fact discount or charging a restocking fee).

Depending on the payment method used, you will have the option to “Refund” or “Refund Offline”. “Refund Offline” means that Magento isn’t actually refunding the customer’s money, the credit memo is just a record of your intention to refund, and you will have to log into your payment processor and refund the money there. “Refund”, on the other hand, means that Magento will refund the customer’s money automatically. Usually PayPal and credit card gateways will allow you to refund the money automatically, and other payment methods will not. If you’re expecting to see the “Refund” button and you don’t, you may have followed the wrong steps to create a credit memo (see the two different ways, above).

Note that credit memo notifications are not automatically emailed to the customer. In order to send a notification you’ll have to check the “Email Copy of Credit Memo” checkbox right above the refund button(s). You may also want to write a note to the customer about the refund in the “Credit Memo Comments” box on the left; if you do this make sure you check “Append Comments” above “Email Copy of Credit Memo” or the comments will be saved as an internal note and not sent to the customer.