When you go into business, and send your first invoice there is no better feeling than the day you receive your first payment! You race to the bank and deposit it. Each day you continue to invoice, collect, and run to the bank! You are so busy you haven’t had a chance to look at all your unpaid invoices, and then suddenly you notice one is “stale”. The longer it sits there the less likely they are going to pay. Oh no, you need to call or have someone on your team call to find out what is wrong. Someone reaches out and to your surprise, the customer is not happy with your work and refuses to pay! You have to make the heart wrenching decision to either write the whole thing off or you negotiate to adjust part of the invoice. This certainly isn’t the part we enjoy but we must face. Translating this to QuickBooks can be a challenging task.
Here are some things you think about. What is the date of the invoice? Has it already been included as a sale in a closed period? If it has, you want to make sure your write-off is dated in the current year.
The most thorough option is to create a credit memo and apply that to the open Invoice, but before you can create the credit memo, there are a few initial setup steps you need to follow:
- The first step is to create an “other expense” account called “Write off”.
- The second step is to create an item code that points to the “Write off” account.
Next, determine the date to use for the credit memo. Typically you use the date that you realized it needed to be written off. Be careful not to change a closed period.
If you have already closed the year, then you need to create a credit memo in the current year. Then apply the credit memo to the open unpaid invoices. When you are finished you will find that the account no longer shows as unpaid.
This is a the most thorough method for an individual transaction. If you are using the Accountant Edition of QuickBooks Desktop, or QBO Accountant, there are tools to write off multiple invoices at once. Check out this course to see how to use it and see if its the write option for you,
Other A/R situations
You can use this same method to clear up other open or overpaid invoices, just use this same item code to do so.
Create an invoice using the item code “Write off” in the amount that needs to be adjusted. Apply the overpayment to this new invoice.
Create a credit memo in the amount that needs to be written off and apply it to the unpaid invoice.
It is a good idea to review your open unpaid invoices monthly to make sure everything looks correct. If there is a manager in charge of the balances make sure they agree that all the unpaid invoices are indeed open and that there is not a need to write anything off.
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