How to write off unpaid invoices and bad debt (step by step)

Writing off an unpaid invoice means formally recognising that it will not be collected. It cleans up your receivables and may have tax consequences. It should be a deliberate decision, not something that happens by neglect.

Before you write it off

• Have you contacted the person who approves payment, not just your usual contact?
• Have you sent a formal past due letter with a deadline?
• Would the customer accept a payment plan or a partial settlement?
• Is the amount large enough to justify a recovery service or small claims?

How a bad debt write-off works

Under accrual accounting you recorded the income when you issued the invoice. A write-off reverses that by recording a bad debt expense and reducing accounts receivable by the same amount. Under cash accounting you never recorded the income, so there is usually nothing to deduct.

Writing off an invoice in QuickBooks

Common approaches are creating a 'Bad debt' expense account and either issuing a credit memo against the invoice or using Receive Payment with a discount mapped to that account. QuickBooks Online and Desktop differ slightly; follow Intuit's current instructions and confirm with your accountant.

Tax treatment

Whether a written-off invoice is deductible depends on your accounting method and local tax rules. Keep evidence of the collection attempts you made. Ask a qualified tax adviser before claiming a deduction.

If they pay later

Reverse the write-off and record the payment. Your audit trail should show both events clearly.

Frequently asked questions

Can you write off unpaid invoices?

Yes. When a balance is genuinely uncollectable you can record it as bad debt, which reduces accounts receivable. Tax deductibility depends on your accounting method and jurisdiction.

Are unpaid invoices tax deductible?

Often only for businesses using accrual accounting that previously reported the income. Confirm with a tax adviser.

When should I write off an invoice?

When reasonable collection efforts have failed and further effort would cost more than the likely recovery.