Does Store Credit & Refund extension support to refund to store credit when we create credit memo?

Yes. When you create new credit memo, you can refund payment to store credit.

Also if you create new order manually, you can use customer credit balance for order too.

A credit memo in Magento is a document that records a partial or full refund for a previously invoiced order. It serves as the official mechanism for returning funds to the customer, whether that refund goes back to the original payment method, is issued as store credit, or is processed as an offline refund. Credit memos are tied to specific invoices, meaning you can only create a credit memo for amounts that have already been invoiced. Each credit memo adjusts the order totals and inventory accordingly, keeping your financial records accurate.

Store owners typically create credit memos when a customer returns a product, receives a damaged item, or when an order needs to be partially adjusted after fulfillment. To create a credit memo in Magento, navigate to the order in the admin panel, open the associated invoice, and click the "Credit Memo" button. From there, you can specify which items are being refunded, adjust quantities, and choose whether to return the items to stock. You can also add adjustment refunds or adjustment fees to account for restocking charges or other modifications to the refund amount.

Magento supports two types of refunds through credit memos: online and offline. An online refund is processed automatically through the payment gateway, meaning the funds are returned to the customer's original payment method, such as a credit card, without any manual intervention from the merchant. This option is available when the payment method supports the refund API, which is the case for most major gateways like PayPal, Stripe, and Braintree. An offline refund, on the other hand, records the credit memo in Magento but does not process the actual payment return. The merchant must then handle the refund manually, for example by issuing a check, making a bank transfer, or applying store credit.

Refunding to store credit is a particularly useful option because it keeps the funds within your store's ecosystem. When a customer receives store credit instead of a payment reversal, they are more likely to make a future purchase, effectively retaining revenue that might otherwise be lost. This approach also avoids payment gateway transaction fees that can apply to refunds. In Magento, the store credit balance is tracked per customer and can be applied at checkout on future orders, giving both the merchant and the customer a convenient and flexible way to handle returns and adjustments.