Every business eventually has an invoice that will never be paid. Leaving it open makes your receivables look healthier than they are, and deleting it erases a real sale from your records. This guide shows how to write off bad debt in QuickBooks the clean way, so the invoice closes, the loss shows up where it belongs, and your reports stay honest.
Last verified: September 2026.
Bad debt write-off or void: which one applies
These are not the same thing, and picking the wrong one skews your numbers.
- Write off when the sale was real, the customer received the goods or service, and you now accept you will not be paid. The revenue stays in your books and a bad debt expense records the loss.
- Void when the invoice should never have existed, for example it was entered by mistake or the job was cancelled before any work was done. Voiding removes the sale as though it never happened.
Before you write anything off, confirm you have tried to collect. Reminders, a final demand letter, and a documented conversation all help if you ever need to explain the write-off to an accountant or tax authority.
How to write off bad debt in QuickBooks Online
QuickBooks does not have a single “write off” button. The standard method uses an expense account, a service item, and a credit memo.
- Create a Bad Debts expense account. In the Chart of accounts, choose New, select Expenses as the type, and use a detail type such as Bad Debts. Skip this step if you already have one.
- Create a “Bad Debt” service item. Go to Products and services, choose New, then Service. Name it Bad Debt and set its income account to your Bad Debts expense account. This lets a credit memo post the loss to expenses instead of reducing income.
- Create a credit memo. Choose New, then Credit memo. Select the customer, add the Bad Debt item, enter the unpaid amount, and save.
- Apply the credit to the invoice. Choose New, then Receive payment for that customer. Both the open invoice and the credit memo appear. Select them together so the credit cancels the balance, then save.
The invoice now shows as paid, the receivable is gone, and the loss sits in your Bad Debts expense. Our guide to setting up a chart of accounts correctly explains how to keep an account like this organized.
What changes on your reports
After the write-off, the Accounts Receivable aging report no longer lists the invoice. Your Profit and Loss shows the amount as an expense in the period you recorded it, which lowers net profit for that period. The original revenue is still recorded in the earlier period when you made the sale. If you want to double check the result, running a P&L report for the period shows the expense line directly.
Cash basis and accrual basis are different
How you report matters here. On an accrual basis, income is recorded when you invoice, so an invoice that never gets paid has to be written off to reverse the earnings you already counted. On a cash basis, income is only recorded when you actually receive the money, so an unpaid invoice never counted as income in the first place. The write-off still clears the invoice from receivables, but the tax treatment can differ. Ask your accountant which method applies to you before you decide how to record it.
Partial write-offs and payment plans
You do not have to write off the whole invoice. If a customer pays part of what they owe and you decide to forgive the rest, record the payment first, then create a credit memo for the remaining balance. This keeps a clear record of what was collected and what was lost. If a customer agrees to a payment plan instead, leave the invoice open and record each payment as it arrives rather than writing it off early.
Sales tax on written-off invoices
If you charged sales tax on an invoice that went unpaid, you may already have reported and paid that tax to the state. Some states let you claim a credit or deduction for tax on bad debt, and others do not. The rules vary by state, so confirm with your accountant or your state’s revenue department before you adjust a sales tax filing.
Common mistakes when writing off bad debt
- Deleting the invoice. This erases the sale and understates your revenue for the period.
- Writing off too early. A slow customer is not the same as an uncollectible one. Use aging reports to spot late invoices and follow up first.
- Posting the credit to income. Without the Bad Debt item linked to an expense account, the credit memo reduces sales rather than recording a bad debt expense.
- Forgetting to record a later recovery. If a customer eventually pays a written-off invoice, reverse the credit memo and receive the payment normally.
Reducing bad debt in the first place
The cheapest write-off is the one you avoid. Clear payment terms on every invoice, deposits for larger jobs, automated reminders, and easy ways to pay all reduce the chance that an invoice is left unpaid. Our guide on getting paid faster with better invoicing and payments covers the practical setup.
Frequently asked questions
Can I write off bad debt in QuickBooks without a credit memo?
Some people use a journal entry instead. A credit memo is generally easier to follow because it links directly to the customer and the invoice, which keeps your receivables clean.
What if the customer pays after I write it off?
Void the credit memo, which reopens the invoice, and then record the payment as usual. If the write-off happened in a period that is already closed, ask your accountant before changing it, because it may need to be recorded as a separate entry in the current period.
Is a bad debt write-off tax deductible?
It can be, but the rules depend on how you report income and on your situation. This is a question for a qualified accountant, not something this article can decide for you.
How long should I wait before writing off an invoice?
There is no fixed rule. Many businesses consider an invoice for write-off after several collection attempts and a long overdue period, often 90 days or more. Follow the policy you set with your accountant.
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