When a customer pays for an order using store credit and the order is status is set to "Cancelled", the payment made with store credit is automatically refunded back to the customer’s account.
What happens when the order is cancelled:
The invoice will display the payment as refunded.
The refunded store credit is immediately added back to the customer’s balance.
If you change the order status to "Pending" and then cancel it again, the refund will not happen a second time because the payment is already marked as refunded.
Customers receive an automatic workflow notification informing them that their store credit has been refunded.
After store credits are refunded upon order cancellation, the payment status of the entire order is changed to "Refunded"
This ensures customers always recover their store credit whenever an order they paid for is cancelled.