View source for Write-Off of Uncollectible Receivables or Bad Debts

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== Write-Off of Uncollectible Receivables (Bad Debts) ==

This guide outlines the procedure to write off an uncollectible customer invoice by creating a credit note and allocating it against the outstanding balance. The written-off amount is posted to the Bad Debts Expense account.

=== '''Identify the Unpaid Invoice''' ===

* Navigate to '''Sales Mgt → Inquiries → Customer Transaction Inquiry'''.
* Locate the '''customer invoice''' confirmed to be uncollectible. This step is for reference only to identify the affected invoice.

=== '''Ensure a GL Code for Bad Debts Exists''' ===

* Confirm that a GL account for Bad Debts exists.
* If not, navigate to '''Finance Mgt → Maintenance → GL Chart of Accounts''' and create a new account:
** Add a '''Bad Debts Expense''' account under the '''Operating Expenses''' category.

=== '''Create a Service Item Called "Bad Debt"''' ===

# Navigate to '''Sales Mgt → Transactions → Issue Customer Credit Notes'''.
# Select the appropriate '''customer'''.
# In the item line:
#* Create a service item named '''Bad Debt''' if it does not already exist.
#* Ensure it is a '''non-stock service item'''.
#* Set the '''Sales Account''' to the Bad Debts GL account created in the previous step.
# Save the item after verifying the account linkage.

=== '''Enter a Credit Note to Write Off the Amount''' ===

# Navigate to '''Sales Mgt → Transactions → Issue Customer Credit Notes'''.
# Select the customer and enter the credit note details:
#* Use the '''Bad Debt''' service item.
#* Enter the QTY as 1 and the unit price as the amount of the invoice amount to be written off.
# Review the entry and click on '''Process Credit Note''' to complete.

=== '''Allocate the Credit Note to the Invoice''' ===

# Navigate to '''Sales Mgt → Allocate Payments or Credit Notes'''.
# Select the appropriate customer invoice.
# Allocate the newly created '''credit note''' to the outstanding balance of the invoice to clear it.

=== '''Add an Audit Comment (Optional)''' ===

* You may add a comment to the invoice or credit note for record-keeping. Example:  
  '''"Bad debt write-off approved on 10 June 2025 by [Your Name]."'''

=== '''Accounting Impact''' ===

Upon processing the credit note, the system will automatically post the following journal entry:

* '''Debit''': Bad Debts Expense  
* '''Credit''': Accounts Receivable / Trade Debtors
[[File:Create Bad Debt Item.png|none|thumb|800x800px|Fig 1: Create a service item "Bad Debt". Ensure the Sales Account code is linked to the Bad Debts GL account.]]