How to write off bad debt in QuickBooks: write off an invoice in QuickBooks Online and Desktop

To write off bad debt in QuickBooks Online, create a Bad debts expense account, create a non inventory product or service item pointed at that account, issue a credit memo to the customer for the unpaid amount using that item, then apply the credit memo to the open invoice through Receive payment. The invoice clears out of accounts receivable, the loss lands in a Bad debts expense account you can report on, and your aging report stops showing money that is never coming. In QuickBooks Desktop the route is different: you use Receive Payments with a zero dollar payment and post the balance through Discounts and Credits.

The mechanics take about four minutes. The two things worth getting right are the item setup, which QuickBooks makes genuinely confusing, and whether you can actually deduct the loss on your taxes, which for a lot of small businesses is no.

When can you write off an invoice?

An invoice is ready to be written off when there is no reasonable expectation you will be paid. The IRS puts it almost exactly that way: a debt becomes worthless when the surrounding facts and circumstances indicate there is no reasonable expectation that the debt will be repaid, and you may take the deduction only in the year the debt becomes worthless.

In practice, most businesses write off too early rather than too late. The usual triggers are real: the customer has dissolved, filed bankruptcy, gone silent for months across every channel, the statute of limitations on the invoice has run out, or the balance is small enough that pursuing it costs more than it is worth. What is not a trigger is that chasing it has become uncomfortable. An invoice that is 90 days past due and has had two emails sent to it is not worthless. It is unworked. Recovery rates in commercial collections drop hard with age, commonly 70% or better inside 90 days and often under 15% past 180, and the single biggest reason invoices reach the 180 day bucket is that nobody followed up between day 30 and day 90.

One practical check before you write anything off: confirm the payment really never arrived. Partial payments applied to the wrong invoice, ACH deposits that were never matched, and check payments recorded against a different customer are all common enough that a five minute look at the bank data is worth it. If your statements are sitting in PDFs rather than a bank feed, you can turn a PDF bank statement into a QBO file QuickBooks will import and reconcile the period properly before you decide anything is uncollectible.

How to write off bad debt in QuickBooks Online, step by step

This is the credit memo method Intuit documents, and it is the one to use if you want the loss to show up as an expense rather than as reduced income.

1. Check the aging report. Reports, then Accounts receivable aging detail. If you are not sure how to read the buckets, our walkthrough of the accounts receivable aging report covers it. Note the exact invoice numbers and amounts you intend to write off. Do this first so you are working from a list rather than from memory.
2. Create the Bad debts expense account. Go to the Chart of accounts and select New. In the Account Type dropdown choose Expenses. In the Detail Type dropdown choose Bad debts. Name it Bad debts and save. If a Bad debts account already exists, use it rather than creating a second one.
3. Create the Bad debts item. Go to Products and services and select New, then Non inventory. Name it Bad debts. In the Income account dropdown, select the Bad debts expense account you just made. Yes, an expense account in a field labeled Income account. That is not a mistake, and the next section explains why.
4. Create the credit memo. Select + New, then Credit memo. Choose the customer. In the Product/Service field select Bad debts. Enter the unpaid amount in the Amount column. If the original invoice carried sales tax, include the tax so you are not left having paid sales tax on revenue you never received. In the Message displayed on statement box, type Bad Debt so the reason is visible later. Save and close.
5. Apply the credit memo to the invoice. Select + New, then Receive payment. Choose the same customer. Under Outstanding Transactions tick the unpaid invoice. Under Credits tick the credit memo you just created. The payment amount stays at zero. Save and close. This is the step people skip, and skipping it leaves both the invoice and an unapplied credit floating on the customer's record.
6. Confirm and report. Re run the Accounts receivable aging detail report and check the invoice is gone. To see everything you have written off, open the Chart of accounts, find the Bad debts account, and select Run report from the dropdown.

Some bookkeepers also rename the customer with a Bad debt tag, for example "Acme Supply (bad debt)", so the history is obvious to whoever inherits the file. It is optional and it is a good habit.

Why QuickBooks makes you assign an expense account in the Income account field

This trips up nearly everyone who does it for the first time, and it produces a lot of confused forum posts.

Product and service items in QuickBooks Online exist to be sold, so the item form only offers an Income account field for the account a sale posts to. It will not offer you an expense account picker. But the Bad debts item is not being sold, it is being used to move a balance out of accounts receivable and into an expense. So you select the Bad debts expense account inside the Income account dropdown, and QuickBooks posts the credit memo against it correctly. The result on your books is a debit to Bad debts expense and a credit to accounts receivable, which is exactly what a write off should be.

The alternative some people reach for is a journal entry that debits Bad debts and credits accounts receivable. It produces the same account balances, but it does not attach to the specific invoice, so the invoice stays open in the customer's record and your aging report keeps showing it. Use the credit memo.

How to write off invoices in QuickBooks Online Accountant

If you have accountant access to the file, there is a bulk tool that is much faster for cleaning up a backlog. Go to Accountant Tools and select Write off invoices. Filter by Invoice Age, a To date, and Balance less than, then select Find invoices. Tick every invoice you want gone, choose your bad debts account in the Account dropdown, and select Apply.

This is the right tool for a long tail of small stale invoices where creating individual credit memos is not a sensible use of an hour. It is worth a word of caution on periods that are already closed and on sales tax: writing off an invoice from a filed quarter can change numbers you have already reported, so check with whoever files your returns before bulk clearing anything historical.

How to write off an invoice in QuickBooks Desktop

Desktop does not use the credit memo route. The documented method is quicker.

First, if you do not already have one, create the expense account: Lists, then Chart of Accounts, then the Account menu, then New. Choose Expense, continue, name it Bad Debt, and save.

Then write the invoice off: go to the Customers menu and select Receive Payments. Enter the customer in the Received from field. Set the Payment amount to 0.00. Select Discounts and Credits. In the Amount of Discount field, enter the amount being written off. In the Discount Account field, select your Bad Debt expense account. Select Done, then Save and Close.

The invoice closes, the loss posts to Bad Debt, and the customer's balance clears. Same accounting result as the Online method, different path through the software.

Can you deduct bad debt from unpaid invoices on your taxes?

This is where most articles on this topic stop being useful, so it is worth being precise. Writing an invoice off in QuickBooks is a bookkeeping action. Whether it is deductible is a separate question with a genuinely surprising answer for a lot of small businesses.

If you file on the cash basis, you generally cannot deduct an unpaid invoice at all. The IRS rule is that to deduct a bad debt you must have previously included the amount in income or loaned out cash. A cash basis business only records income when the money actually arrives, so an unpaid invoice was never in your income, and there is nothing to deduct. The IRS gives the example directly: a cash method architect cannot claim a bad debt deduction when a client fails to pay the bill, because the fee was never included in income. The same applies to unpaid fees, rents, wages, interest and dividends.

You are not losing anything by this, arithmetically. You simply never paid tax on that revenue in the first place. But it does mean the write off gives you a cleaner aging report and no tax benefit.

If you file on the accrual basis, you generally can. You recorded the income when you issued the invoice and paid tax on it, so writing off the worthless amount is a business bad debt deduction. Sole proprietors and single member LLCs report it on Schedule C (Form 1040); partnerships and corporations take it on their own returns. Business bad debts, unlike nonbusiness ones, can be deducted in full or in part, so a debt that is only partially worthless can still be partially deducted.

One housekeeping note if you are checking this yourself: Publication 535, which almost every older article cites for bad debts, was discontinued after 2022. The current guidance lives in IRS Topic 453 and, for small business, Publication 334. This is information rather than tax advice, and the accrual versus cash question is exactly the kind of thing to put to your CPA before it hits a return.

What happens if the customer pays after you wrote the invoice off?

It happens more often than you would expect, particularly after a business is sold or a new controller starts cleaning up their own payables. Do not delete the write off to make room for the payment. That rewrites a closed period and creates a mess in any month you have already reconciled.

Instead, record the money as income in the period it arrives. In QuickBooks Online the simplest treatment is a bank deposit posted to your Bad debts account, which nets the recovery against the expense, or to a separate Bad debt recovery income account if you want recoveries visible on their own line. Either way the original write off stays intact and the history stays honest. If you already took a deduction for the debt on a prior return, the recovery is generally taxable income in the year you receive it.

Before you write it off, work it once properly

The write off is the last step, and a lot of invoices reach it having only really been chased once. If a customer is still trading, still answering the phone for sales calls, and simply has not paid, that is not a worthless debt. It is an invoice that has never had a firm, dated, escalating sequence pointed at it.

A schedule that works for most US B2B terms is unglamorous: a soft reminder at day 3 past due, a direct request restating the invoice at day 15, a firm notice citing your payment terms and any late fee at day 30, a phone call at day 45, and a formal demand letter at day 60. The reason it works is not the wording. It is that it happens on every invoice, in that order, without depending on anybody being in the mood for it. Running that sequence out of your aging report is what QuickBooks accounts receivable automation is for, and it is considerably cheaper than either a collection agency at 25% to 50% of what it recovers or the invoice itself.

Once you have genuinely worked an invoice and the customer is unreachable, insolvent or refusing, then write it off with a clear conscience, tag the customer so nobody extends them credit again, and move on. The purpose of the aging report is to tell you the truth about your cash. Invoices you know you will never collect make it lie.