Errors
In QuickBooks Online, create a Credit Memo using a Bad Debt item, then apply it to the unpaid invoice. In Desktop, use the Customers → Create Credit Memos/Refunds workflow.
Invoice still showing as open after write-off? Make sure you applied the credit memo to the specific invoice rather than leaving it as an unapplied credit.
Method 1: Write Off an Invoice in QuickBooks Online
Follow these steps carefully to resolve the issue using this approach.
Create a Bad Debt Item
Go to Settings → Products and Services → New. Create a service item named 'Bad Debt' mapped to a Bad Debt expense account.
Create a Credit Memo
Go to + New → Credit Memo. Select the customer, choose the Bad Debt item, and enter the amount of the unpaid invoice.
Apply the Credit Memo
Go to + New → Receive Payment. Select the customer, check both the open invoice and the credit memo, and save. The invoice is now closed.
Verify the Write-Off
Run an Accounts Receivable Aging report to confirm the invoice no longer appears as outstanding.
Tip: After completing each method, test to see if the issue is resolved before moving on.
Method 2: Write Off Bad Debt in QuickBooks Desktop
Follow these steps carefully to resolve the issue using this approach.
Set Up a Bad Debt Item
Go to Lists → Item List → New. Create an Other Charge item named 'Bad Debt' linked to a Bad Debts expense account.
Create a Credit Memo
Navigate to Customers → Create Credit Memos/Refunds. Select the customer, add the Bad Debt item, and enter the invoice amount.
Apply to the Invoice
When prompted, select Apply to an Invoice and choose the unpaid invoice. Click Done.
Adjust Sales Tax If Needed
If the original invoice included sales tax, you may need to adjust your sales tax liability by the tax portion of the written-off amount.
Warning: Always back up your data before making significant changes to your configuration or files.
Method 3: Write Off Multiple Invoices at Once
Follow these steps carefully to resolve the issue using this approach.
List Outstanding Invoices
Run an A/R Aging report filtered by the customer to see all unpaid invoices.
Create One Credit Memo Per Invoice
For clean audit trails, create a separate credit memo for each invoice being written off.
Apply Credits in Receive Payment
Open Receive Payment, select the customer, and match each credit memo to its corresponding invoice.
Why Does This Problem Happen?
Unpaid invoices that remain on your books overstate your assets and give a misleading picture of your business health. Writing them off as bad debt moves the amount from Accounts Receivable to a Bad Debt Expense, which accurately reflects the loss. For tax purposes, bad debt deductions may reduce your taxable income, but consult your accountant about timing and documentation requirements.
Frequently Asked Questions
Most businesses write off invoices after 90-120 days of non-payment and after all collection efforts have failed. Your accountant may recommend a specific policy.
Yes. Create a new invoice for the amount received, then record the payment. This reverses the bad debt effect and records the recovered income.
Create a credit memo for only the portion you are writing off. Apply it to the invoice, leaving the remaining balance open.
Under the accrual method, the bad debt expense reduces your taxable income. Under the cash method, there may be no tax impact since the income was never recorded.
Create an expense account called Bad Debt Expense or Uncollectible Accounts under your Chart of Accounts.
QBO does not have a bulk write-off feature. You need to create individual credit memos or use a batch transaction app from the QuickBooks App Store.
Run a Transaction List by Date report filtered to Credit Memo transactions that use the Bad Debt item.
No. Deleting removes the audit trail. Always write off using a credit memo so the original invoice and the write-off are both documented.
In QuickBooks Desktop, you may need to create a sales tax adjustment. In QBO, the credit memo with a non-taxable Bad Debt item handles this automatically.
Debit: Bad Debt Expense, Credit: Accounts Receivable. This moves the amount from an asset to an expense.