How to Write Off Bad Debt

The Bad Debt Write-Off process enables you to formally remove uncollectible invoices from accounts receivable, recording the loss as a bad debt expense whilst maintaining accurate financial records and audit trails. Writing off bad debts is necessary when customers are unable or unwilling to pay despite collection efforts, whether due to bankruptcy, business closure, disputes, or other circumstances making recovery impossible or uneconomical.

Exacc provides a structured write-off workflow requiring proper documentation, management approval, and appropriate accounting treatment to ensure compliance with financial reporting standards and tax regulations. The system creates correct accounting entries debiting bad debt expense accounts and crediting accounts receivable to remove the asset, whilst handling GST adjustments for Australian businesses eligible to claim GST credits on written-off debts. Write-offs maintain complete transaction history showing the original invoice, write-off date, reason, approval, and supporting documentation for future reference and audit purposes.

Before processing write-offs, businesses should exhaust reasonable collection efforts including payment reminders, direct contact, payment plans, and debt collection agencies, ensuring write-offs are justified and defensible to tax authorities and auditors. The write-off function distinguishes between full write-offs removing entire invoice balances and partial write-offs for disputed amounts or settled portions, with the system tracking written-off amounts separately from active receivables in management reports. If customers unexpectedly pay written-off debts later, the system supports bad debt recovery processing to reverse expense entries and record the recovered amounts correctly.

Want to learn the exact steps to properly write off uncollectible debts? Follow our guide below for a detailed walkthrough of the bad debt write-off process.