How to Write Off Bad Debt in QuickBooks Online

To write off bad debt in QuickBooks Online, you’ll create a bad debt expense account, set up a product/service item tied to that account, and then issue a credit memo to offset the unpaid invoice. Finally, you apply the credit memo to the customer’s invoice, which clears the balance from accounts receivable while properly recording the loss in your financial statements.

Create a Bad Debt Expense Account

Before you can write off invoices, you need a dedicated account for tracking bad debt.

1. Sign in to QuickBooks Online.
2. From the left-hand menu, go to Settings (⚙️) > Chart of Accounts.
3. Click New.
4. Under Account Type, select Expenses.
5. Under Detail Type, choose Bad Debts.
6. Name the account something clear like Bad Debt Expense.
7. Save and close.

Why this matters: When you create a separate bad debt account, you ensure these amounts don’t inflate your income or receivables.

Review and Identify the Invoice to Write Off

Now, locate the customer’s invoice that needs to be written off.

1. From the left menu, select Sales > Customers.
2. Choose the customer whose invoice is uncollectible.
3. Click on the outstanding invoice.
4. Double-check the details (amount, due date, and history) to confirm it is indeed uncollectible.

Example: If John Smith owes $1,000 for services delivered six months ago and you’ve confirmed no payment will arrive, that invoice qualifies as bad debt.

Create a Credit Memo for the Bad Debt

Credit memos are used to offset the unpaid invoice.

1. Go to + New > Credit Memo.
2. Select the customer whose invoice you’re writing off.
3. Under Product/Service, create or select a service item called Bad Debt.
   
   • If it doesn’t exist yet:
     
     • Click + Add New > Service.
     • Name it Bad Debt.
     • Assign it to the Bad Debt Expense Account you created earlier.
     • Save.
4. Enter the amount equal to the unpaid invoice.
5. Save and close.

This credit memo essentially cancels out the invoice, moving the balance into your bad debt account.

Apply the Credit Memo to the Invoice

To ensure your receivables reflect the adjustment, you’ll need to link the credit memo.

1. Go to + New > Receive Payment.
2. Select the customer.
3. The unpaid invoice will appear along with the credit memo.
4. Check both the invoice and credit memo to apply them against each other.
5. The balance should now show as $0.00.
6. Save and close.

Confirm in Your Reports

After applying the credit memo, verify that everything looks correct in your reports.

1. From the left menu, go to Reports.
2. Search for and open Profit and Loss.
3. Look for the Bad Debt Expense line under Expenses.
4. Check Accounts Receivable Aging Summary to confirm the invoice no longer appears as overdue.

This ensures your financial statements now reflect the true state of your receivables.

Example: Invoice Write-Off Flow

Bonus Tip: Integrate DepositFix with QuickBooks

If you frequently deal with recurring payments, failed transactions, or overdue invoices, integrating DepositFix with QuickBooks can help reduce bad debt altogether. DepositFix automates payment collections and connects directly with QuickBooks and your payment processor, ensuring invoices are paid faster and minimizing the risk of unpaid balances.