Bad debts and write-offs
Sometimes a customer will not pay an invoice and you decide to give up on collecting it. Recording this properly is called writing off a bad debt. This guide explains when to do it, what it does to your accounts, and how it differs from voiding.
When to write off an invoice
Write off an invoice when you have issued it, the customer owes money against it, and you have genuinely decided the amount will not be collected. Writing off:
- removes the outstanding amount from your accounts receivable, so your reports stop showing money you will never receive, and
- records the loss as a bad debt expense, so your profit reflects it.
Do not write off an invoice you simply want to cancel or correct — for that, void it or raise a credit note instead.
Before you begin
- The invoice must be Issued and have an outstanding balance. You cannot write off a draft, a voided invoice, an already-written-off invoice, or one that is fully paid.
- Your chart of accounts must contain a Bad Debt Expense account. Every starter chart includes one (code 8100), and Sales Scribe finds it by its role, so you may rename it. If your chart was set up before that account existed, add an Expense account named Bad Debt Expense (see Add or edit a ledger account); the first write-off recognises it by that name and takes it on. Sales Scribe will tell you if it cannot find one.
Steps
- Open the invoice you want to write off.
- Choose the Write Off action.
- Check the date of write-off. It defaults to today (in your organisation's time zone), but a bad debt is routinely recognised at the year end, so set it to the date the loss belongs to. It cannot be earlier than the invoice date or later than today. If the date falls inside a locked period, a note under the field says so before you confirm — the write-off will be refused, or, if you hold the override, recorded.
- Enter a reason (required — it is kept as a permanent record of why the debt was written off).
- Confirm.
What happens next
- Sales Scribe records Dr Bad Debt Expense / Cr Accounts Receivable for the outstanding amount, dated on the write-off date you chose — so a debt written off at the year end reduces that year's profit, not the day you clicked.
- The invoice's status becomes Write-Off.
- The amount leaves your receivables and no longer appears as outstanding on the dashboard or the Aged Receivables report.
- The loss appears as an expense on your Profit and Loss.
Important notes
- VAT is not reversed by a write-off. Writing off the debt records the loss but does not undo the Output VAT you charged on the original invoice. The VAT Summary report still includes written-off invoices in Output VAT. If you need to reclaim VAT on a bad debt, that is a separate tax matter — take advice appropriate to your jurisdiction; Sales Scribe does not do it automatically as part of a write-off.
- A write-off is not a void. A void reverses the whole invoice (including its VAT); a write-off keeps the sale and its VAT and records the uncollected amount as an expense. Choose based on what actually happened: a genuine sale that went unpaid is a write-off; an invoice raised in error is a void.
- Partial situations. The write-off clears the remaining outstanding balance. If the customer has already partly paid, only the unpaid remainder is written off.
Troubleshooting
- "...has nothing outstanding to write off." The invoice is already settled (paid, credited, or previously written off). There is nothing to write off.
- "No Bad Debt Expense account was found..." Add an Expense account named Bad Debt Expense to your chart of accounts, then try again.
- "...cannot be written off before that date" or "A write-off cannot be dated in the future." The write-off date must fall between the invoice date and today. Correct the date.
- "This is dated ... and the books are locked up to and including ..." The write-off date is inside a locked period. See Why can't I post into this date?.
- The Write Off option is unavailable. The invoice is a draft, voided, or already written off. Only an issued invoice with a balance can be written off.