n-How to Write Off Bad Debt in QuickBooks Online (Without Losing the Paper Trail)
Create a Bad Debt expense account and a matching non-inventory item, then apply a credit memo for the unpaid amount against that item on the original invoice. This keeps a record that the sale happened and the money was never collected, instead of deleting the invoice and pretending it didn't. Here's the exact sequence, start to finish.
The full walkthrough
1. Create a Bad Debt expense account. Go to Settings > Chart of Accounts > New. Choose Expenses as the account type and Bad debts as the detail type, then save.
2. Create a Bad Debt item. Go to Settings > Products and Services > New, choose Non-inventory, name it something like "Bad debt," and set the income account to the Bad Debt expense account you just created. This item is what you'll actually put on the credit memo.
3. Confirm the invoice really won't be collected. Writing off bad debt is a judgment call, not a status QuickBooks tracks for you. Make sure collection efforts are genuinely done before you do this; it's meant for debt you're certain you won't recover, not a slow payer you're still chasing.
4. Create a credit memo. Go to + New > Credit memo, select the same customer, and use the Bad Debt item for a line equal to what's owed.
5. Apply the credit memo to the open invoice. Open the original invoice, or go to Receive payment for that customer, and apply the credit memo against the unpaid balance. This zeroes out the invoice without deleting it, and the Bad Debt expense account now reflects the loss.
Why this is a different move than deleting the invoice
Deleting an invoice erases it, including the sale itself, which distorts your sales history and can understate revenue you actually earned, even if you never collected it. Writing it off keeps the original invoice intact and records the loss separately as an expense, which is what your books, and your accountant come tax time, actually need.
The genuinely manual part here isn't the mechanics above, it's the judgment call in step three: deciding which invoices have actually gone bad versus which customers just need another reminder. That decision usually lives in someone's head, or in a spreadsheet of "customers who owe us money and probably aren't paying," reviewed every so often by whoever remembers to check.
The actual write-off, once decided, takes two minutes. Figuring out which invoices belong on that list, consistently, every month, is the part that tends to slip.
What we've built on top of QuickBooks bad debt write-offs
Aging invoices flagged before they're forgotten
Invoices that cross an age or amount threshold with no payment and no recent contact get surfaced automatically, instead of relying on someone remembering to run an aging report.
Write-offs that follow your actual approval process
Once a bad debt write-off is approved outside QuickBooks, by a manager, a credit policy, whatever your business actually requires, the credit memo and account entries get created to match, instead of someone doing the bookkeeping steps from memory each time.
How do uncollectible invoices get decided on in your business?
A couple of examples, out of however many. Tell us how that decision actually gets made today and we'll tell you if the follow-through can happen on its own.
Figuring out which invoices to write off more often than you'd like?
The write-off itself isn't the hard part; deciding which invoices qualify and remembering to act on it is. Tell us how that decision gets made in your business right now, and we'll tell you if it can surface itself before an invoice is six months overdue. Bad debt is one example of something manual; if there's a bigger one elsewhere, bring that instead.
Let's talk