How to write off bad debt in QuickBooks Online without deleting the invoice
Deleting an unpaid invoice hides the loss and overstates your past income. The correct route is a bad debt item and a credit memo, which records the loss where your accountant expects it.
Verdict
Do not delete the invoice. Create a bad debt expense account, a service item pointing at it, then a credit memo applied to the invoice. That clears the receivable and records the loss properly.
Why not just delete the invoice#
Because deleting it tells a lie about a period that is already closed.
Two facts, not one
What a write-off records
The sale happened. The money never arrived. Deleting erases the first to hide the second.
The invoice was real. You did the work, you billed for it, and your books recorded income in that month. Deleting the invoice removes that income retroactively, which changes a month you may already have reported on.
A write-off keeps both facts on the record: the sale happened, and the payment never came.
The four steps#
1. Create the expense account#
Gear icon → Chart of accounts → New.
Account type Expenses. Name it Bad Debt Expense, or whatever your accountant prefers.
You only do this once.
2. Create a bad debt item#
Gear icon → Products and services → New → Service.
Name it Bad debts. Under the income account dropdown, choose the Bad Debt Expense account you just made.
Also once only.
3. Raise a credit memo#
+ New → Credit memo.
Choose the customer. In Product/Service, select Bad debts. Enter the unpaid amount.
Save and close.
4. Apply it to the invoice#
+ New → Receive payment.
Choose the same customer. Under Outstanding Transactions, tick the unpaid invoice. Under Credits, tick the credit memo you just made.
The amounts cancel. Save and close.
What changed in your books#
| Before | After | |
|---|---|---|
| Accounts receivable | Includes the unpaid amount | Reduced by it |
| Bad Debt Expense | $0 | The written-off amount |
| The original invoice | Open | Closed, still visible |
| Reported income for the original month | Unchanged | Unchanged |
That last row is the point. Your history stays honest.
Before you write anything off#
Has it actually gone bad? A write-off is an accounting judgement, not a mood. Most businesses use a rule such as ninety or a hundred and twenty days past due plus a failed collection attempt. Pick a rule and apply it consistently.
Is the period closed? If the invoice sits in a closed period, talk to whoever closes your books before doing this. The usual correct treatment is to write off in the current period rather than reaching back.
Are you on cash basis? Then you never recorded the income, so there is nothing to reverse. Clearing the open invoice may still be worth doing for tidiness, but do not assume it is a deductible expense. That is an accountant question.
Doing it faster next time#
Steps 1 and 2 exist once. After that, a write-off is a credit memo and a receive-payment screen, which takes about a minute.
That is worth knowing, because the reason people delete invoices is that the correct method looks like four steps. It is four steps the first time and two steps afterwards.
If you are working through several of these because you inherited messy books, the reconciliation side of that clean-up is in how to undo a reconciliation.
The short version
What works
- The invoice stays in your records, so the sale and the loss are both visible
- The loss lands in a named expense account your accountant can find at year end
- Once the item exists, writing off future bad debts takes about a minute
What does not
- It is four steps rather than one, which is why people delete the invoice instead
- Writing off across a closed period needs care, and often an accountant
- Cash-basis and accrual-basis businesses are not in the same position here
Frequently asked questions
- How do I write off bad debt in QuickBooks Online?
- Create a Bad Debt Expense account, create a service item pointing at that account, raise a credit memo to the customer using that item for the unpaid amount, then apply the credit memo to the invoice through Receive payment. The invoice closes and the loss lands in the expense account.
- Can I just delete the unpaid invoice instead?
- You can, and you should not. Deleting removes the sale from the period it happened in, which overstates that period income and leaves no record that the customer ever owed you. Writing it off keeps both facts, which is what your accountant and any auditor needs.
- Where does the loss show up after a write-off?
- In the Bad Debt Expense account on your profit and loss. Accounts receivable drops by the same amount. That pairing is exactly what a write-off is meant to record, and it is why the credit memo route exists rather than simply editing the invoice.
- Does a cash-basis business need to write off bad debt?
- Usually not in the same way. On cash basis you never recorded the income, so there is no income to reverse. You may still want to clear the open invoice for tidiness. Ask your accountant before treating it as a deductible expense, because the tax treatment differs.
Written by
Nizam Uddin
Founder and pricing researcher
Nizam started Tested AI after noticing how often published software prices are simply wrong. Most articles copy a vendor's pricing page once and never look again. He checks every figure against the vendor's own page, cross-references independent trackers, and states plainly when they disagree rather than picking whichever number reads best. He does not claim to have run these tools in production, and the reviews say so at the top of every page.
- Checks every price against the vendor page
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