Write-Off of Uncollectible Receivables or Bad Debts

Write-Off of Uncollectible Receivables or Bad Debts

Identify the Unpaid Invoice

• Navigate to Sales Mgt, Inquiries, Customer Transaction Inquiry
• Search and locate the customer invoice that is confirmed to be uncollectible. (This is only "for info" to verify which invoice is affected).

Ensure you have a GL code for Bad Debts

• Check if a "Bad Debts" account code has been created. If not, please create one. Navigate to Finance Mgt, Maintenance, GL Chart of Accounts.
  • Add a Bad Debts Expense account under Operating Expenses.

Enter a Service Item Called "Bad Debt"

1. Go to Sales Mgt, Transactions, Issue Customer Credit Notes.
2. Select the customer associated with the unpaid invoice.
3. In the item line:
   • Create a service item "Bad Debt" if you do not already have one. It has to be a service item.
   • Use a non-stock item, say "Bad Debt" as shown in Fig 1.
   • Note: Be sure that the Sales Account is set to the GL Bad Debt account created as described in the "Ensure you have a GL code for Bad Debts" section above.
4. Save the item just created.

Enter a Credit Note to Write Off the Amount

1. Navigate to Sales Mgt, Transactions, Issue Customer Credit Notes.
2. Enter the credit note by filling up the form. The steps are the same as creating any new sales transactions.
3. After ensuring all the information are correct, click on "Process Credit Note" button.

Allocate the Credit Note to the Invoice

1. Navigate to Sales Mgt, Allocate Payments or Credit Notes.
2. Select the Invoice with Bad Debt.
3. Allocate the newly created credit note against the original unpaid invoice balance to clear the outstanding balance.

Add an Audit Comment (Optional)

• You may add a comment to either the invoice or credit note for audit purposes. Example: "Bad debt write-off approved on 10 June 2025 by [Your Name]."

Accounting Impact

Upon posting the credit note, the system will generate a journal entry as follows:

• Debit: Bad Debts Expense
• Credit: Accounts Receivable (Customer) / Trade Debtors.

Fig 1: Create a service item Bad Debt. Ensure the Sales Account code is the Bad Debt Account code that it will be charged to.