How to Write Off Accounts Receivable

To write off accounts receivable, review all overdue invoices and confirm that all collection efforts, emails, calls, or payment arrangements have been exhausted. Identify invoices unlikely to be collected, then reclassify them as bad debt expenses in your accounting system. Document each write-off for internal records and tax compliance. 

Properly writing off accounts receivable ensures accurate financial statements, protects cash flow forecasts, and helps analyze client credit risk for future invoicing decisions.

Identify Uncollectible Invoices

Before writing off any AR, determine which invoices are unlikely to be collected. Common indicators include:

• Clients who have gone out of business.
• Long-overdue invoices (90+ days past due).
• Disputed invoices with no resolution after repeated follow-ups.
• Clients who declare bankruptcy or insolvency.

Example: A contractor has an invoice for $1,500 from a client who filed for bankruptcy. After attempts to collect fail, it’s flagged as uncollectible.

Review Your Collection Efforts

Ensure all reasonable collection efforts have been exhausted before writing off:

• Send final reminder emails or letters.
• Make phone calls to confirm payment status.
• Offer payment plans or settlements if applicable.
• Engage a debt collection agency if appropriate.

Tip: Document every attempt to contact the client to justify the write-off for internal records and audits.

Classify the Invoice as Bad Debt

Once confirmed as uncollectible, reclassify the invoice in your accounting system:

• Move it from Accounts Receivable to a Bad Debt Expense account.
• Adjust financial statements to reflect the write-off.

Example:

Make the Accounting Entry

Record the write-off in your accounting system to maintain accurate books:

Journal Entry Example:

• Debit: Bad Debt Expense $1,500
• Credit: Accounts Receivable $1,500

This reduces both your AR balance and your taxable income (in most jurisdictions), reflecting that the invoice is no longer expected to be paid.

Communicate Internally

Notify relevant internal teams about the write-off:

• Accounting team for updated ledgers.
• Sales or project managers for client records.
• Finance team for forecasting adjustments.

Tip: This ensures everyone has the same understanding of client status and cash flow expectations.

Analyze and Adjust Credit Policies

Write-offs provide insight into client behavior and risk:

• Identify clients with repeated late payments or defaults.
• Adjust credit terms or limits for future invoices.
• Consider requiring deposits or prepayments for high-risk clients.

Example: A construction company notices that clients in a certain region often default, so they implement a 30% upfront deposit requirement.

Maintain Documentation for Audits

Keep records of all write-offs for accounting audits and tax purposes:

• Copies of invoices and communication with the client.
• Notes on collection attempts.
• Journal entries in your accounting system.

Tip: Well-documented write-offs protect your business in case of financial review or tax audit.

Use Automation Tools

Modern accounting and AR automation software can simplify the write-off process by:

• Flagging long-overdue invoices automatically.
• Allowing easy reclassification to Bad Debt Expense.
• Keeping a historical record of all write-offs for reporting.

Examples: DepositFix supports tracking and writing off uncollectible AR efficiently.