When you know that a customer will never pay, write off the invoice. This situation can arise due to a dispute or when the customer’s company goes into liquidation.

To write off your customer’s invoice, create a credit note using the Bad Debts ledger account. This action offsets the bad debt against your profit for the current financial year.

Before you start

You need to ensure that you've got the correct visibility settings for the Bad Debts ledger account in your chart of accounts.

Credit the invoice

1. Go to Sales, then Sales Invoices.

2. Open the invoice you need to credit.
3. Select Add credit note.
4. We recommend that you create the credit note using the following details:
   
   • Ledger Account - choose Bad Debts (8100)
   • Credit Date- Use the date you decided to class the invoice as bad debt
   • VAT Rate - Choose No VAT
   • Net - Enter the gross value of the invoices you want to write off. As there's no VAT on the credit note, this ensures you write the whole amount off
5. Select Save.

To clear the outstanding debt, match the credit to any outstanding invoices. For more information, read Allocate existing transactions.

You can reclaim the VAT on an unpaid invoice if you meet the criteria. Read reclaim the VAT from a bad debt invoice for more information.