Just because you send a customer an invoice doesn’t necessarily mean that he or she will pay it. Hopefully, this never happens to your business, but there are instances in which a customer won’t pay the invoice. Maybe the customer has fallen on financial hardship, or perhaps he or she is unhappy with the product or service they purchased. Regardless, it’s important for the business owner to properly record these unpaid invoices. So, how do you write off an unpaid invoice such as this using Quickbooks?
Before recording an unpaid invoice in Quickbooks, you should first attempt to collect the funds from the respective customer or client. If he or she doesn’t respond, send the invoice again, including a reminder that it’s past due. You don’t want to be pushy, but rather let the customer know that he or she needs to pay for their purchase. Only after you’ve exhausted all possible means of collection should you write off the unpaid invoice in Quickbooks.
To write off an unpaid invoice in Quickbooks, you need to add it as “bad debt.” This is done by creating a new expense account chart of accounts, giving it the name “Bad Debt” (or something similar). Next, go ahead and create a non-inventory item under Products and Services and select the bad debt expense account you just recently created on the item section. From here, you can create a credit memo for the customer, giving that customer the bad debt item along with the amount of the unpaid invoice. When you are finished, apply the credit memo to the invoice and click “Save.”
Of course, it’s important to write off bad debt; otherwise, you’ll end up paying income taxes on the invoice total. If the invoice was $100, for instance, your books will show that you earned $100 on the invoice — even if you never collected it from the customer. By writing off this invoice as bad debt, however, you can avoid this tax while ensuring your books are correct and up to date.
Hopefully, this gives you a better idea of how to handle unpaid invoices in Quickbooks. You may never encounter a situation in which you have to write off an unpaid invoice as bad debt. However, it’s best to err on the side of caution by familiarizing yourself with the process nonetheless. If a customer doesn’t pay an invoice, refer to the steps described here to write off the invoice as bad debt.
Did this tutorial work for you? Let us know in the comments section below!