Difference between cancelling and refunding an invoice
The difference between cancelling and refunding a paid invoice is that when you cancel an invoice the system will leave the amount that was cancelled on the customer's account. This amount can only be used to pay for future invoices.
Refunding an invoice will always put the amount back to the member's bank account. You can only refund an invoice if it was paid with the payment gateway.
In both cases, the system will create a credit note record to account for the transaction.
Unpaid invoices that are cancelled will balance out the ledger, the credit note that results from the cancellation will pay out the unpaid invoice.