To cancel an order, it must be both unpaid and unfulfilled.
You can’t change the payment status from paid to unpaid, but you may change the fulfillment status this way:
Then, find the More actions dropdown in the top-right and click Cancel order:
Finally, confirm order cancelation.
NOTES:
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If you track inventory, products are restocked automatically
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Order cancelation can’t be undone, i.e., you won’t be able to return the order to its previous state
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You won’t be able to create an invoice for a canceled order, but if the invoice has been created earlier (before canceling the order), you can still view, download, print, or send it to your client