Before touching the books, run this sanity check: if the receivable is under 0.5 % of total A/R and the customer’s still in business, skip the write-off and keep aging the invoice. Otherwise, follow the steps below.
Quick Fix
When an account is clearly uncollectible, debit Allowance for Doubtful Accounts and credit Accounts Receivable for the exact unpaid amount. No profit-and-loss hit today—you already set aside that reserve.
What's Happening
Under the allowance method, you estimate bad-debt losses in the same period you record the sale, then write them off against the pre-built reserve when the receivable actually goes bad.
This keeps revenue and expenses matched, unlike the direct-write-off method, which GAAP FASB ASC 606-10-25-1 prohibits for material balances.
How do I actually do the write-off?
Start by locating the customer’s open invoice in your A/R sub-ledger, verify it’s truly past-due, create the journal entry, clear the invoice, and archive your documentation.
- Find the customer’s open invoice in your A/R sub-ledger (QuickBooks 2026: Sales → Customers → Receive Payments; NetSuite: Transactions → Customers → Credit Memos → Issue Credit).
- Confirm the balance is past-due by more than 120 days and the customer isn’t in bankruptcy or litigation as of 2026.
- Create the write-off journal entry:
- Debit: Allowance for Doubtful Accounts – $X.XX
- Credit: Accounts Receivable – Customer Name – $X.XX
- Remove the invoice from A/R so it no longer appears on aged-trial-balance reports (QuickBooks: Sales → Customers → Receive Payments → Select Invoice → Set “Discounts & Credits” = Write-off).
- Save all related paperwork (email chains, collection letters, court filings) for seven years—IRS IRS Pub 583 requires contemporaneous records.
What if the write-off doesn’t stick?
You can recover the receivable within 90 days, adjust your bad-debt percentage, or take the customer to small-claims court.
- Bring the receivable back to life within 90 days: reverse the write-off (credit Allowance, debit A/R), then collect normally.
- Tweak your percentage-of-receivables aging if estimates feel off: Reports → Accountant & Taxes → Aging Detail → Adjust Bad-Debt % (current industry median for B2B is 1.5 % for 1–30 days, 3 % for 31–60 days, 6 % for 61–90 days, 10 % for 91–120 days, then 100 % thereafter) CRF 2025 Survey.
- Pursue small-claims court for balances over $10 k; use the same paperwork you gathered for the write-off.
How can I stop these write-offs from happening?
Implement a credit-limit policy, review aging reports monthly, set a bad-debt reserve, and switch to electronic invoicing.
| Action | Tool or Step | How Often |
|---|---|---|
| Credit-limit policy | Set per-customer limit equal to 10 % of monthly revenue or 1.5× average collection-period cash | Annually and after any late-pay incidents |
| Aging report review | Export Aging Detail (Excel), color-code anything over 60 days red, and start collection calls | Monthly, first week |
| Bad-debt reserve | Apply the aging-method formula: Σ(Invoice × % uncollectible) → post adjusting entry in the last month of the quarter | Quarterly close |
| Electronic invoicing | Enable QuickBooks “Automatic ACH” or Stripe “Instant Pay” to shave roughly seven days off your DSO NACHA 2025 | Ongoing |
(Honestly, this is the best way to stop surprises.) Keep the allowance balance between 2 % and 3 % of total A/R; if it climbs higher, tighten credit terms or raise prices.
