Write-Off of Uncollectible Receivables or Bad Debts

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"

1. Navigate to Sales Mgt → Transactions → Issue Customer Credit Notes.
2. Select the appropriate customer.
3. 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.
4. Save the item after verifying the account linkage.

Enter a Credit Note to Write Off the Amount

1. Navigate to Sales Mgt → Transactions → Issue Customer Credit Notes.
2. 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.
3. Review the entry and click on Process Credit Note to complete.

Allocate the Credit Note to the Invoice

1. Navigate to Sales Mgt → Allocate Payments or Credit Notes.
2. Select the appropriate customer invoice.
3. 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

Fig 1: Create a service item "Bad Debt". Ensure the Sales Account code is linked to the Bad Debts GL account.