The first thing to know is that bad debt write-offs only apply if you use accrual basis accounting. On accrual basis, you record revenue when you invoice the customer, not when you receive payment. So if the customer never pays, you need to reverse that income by recording a bad debt expense.

If you’re on cash basis (which many small businesses are), you only record income when money actually comes in. Since you never booked the revenue from that unpaid invoice, there’s nothing to write off. The invoice just sits there unpaid and eventually you stop pursuing it.

For accrual basis businesses, the timing depends on your collection efforts and the specific situation. An invoice that’s 30 days late is just slow payment. At 60 to 90 days, it’s a real concern and you should be actively following up. Once you hit 120 days with no response or broken payment promises, you’re looking at a probable bad debt. By 180 days, most businesses consider it uncollectible.

Before writing anything off, document what you did to collect. Send reminder emails, make phone calls, and send a formal demand letter. For larger amounts, consider a collections agency or small claims court. The IRS expects you to demonstrate that the debt is genuinely worthless, not just inconvenient to chase down. A paper trail of your efforts protects you if the deduction is ever questioned.

To record the write-off in QuickBooks, set up a bad debt expense account in your chart of accounts. Create a credit memo using that account for the amount of the unpaid invoice, then apply the credit memo to close out the original invoice. This removes the receivable from your balance sheet and records the loss on your income statement. Your full-service bookkeeping reports will then reflect the accurate picture of what you actually collected versus what you billed.

Tax timing matters too. You claim the bad debt deduction in the year it becomes worthless. If you invoiced a customer in 2023 but didn’t exhaust collection efforts until 2024, the write-off belongs on your 2024 return. Talk to your CPA about the right year to claim it.

The best way to avoid bad debt surprises is to review your accounts receivable aging report every month. When you see invoices sliding past 30 or 60 days, that’s the time to act. The longer an invoice goes unpaid, the less likely you are to collect. Building a consistent follow-up process into your routine makes a huge difference. If you need help getting your receivables and books organized, outsourced bookkeeping in Jacksonville can take that off your plate so nothing falls through the cracks.

Finally, consider creating a bad debt policy for your business. Decide upfront at what point you escalate to formal collection, when you cut off services to non-paying customers, and when you officially write off the balance. Having a policy keeps you from making case-by-case emotional decisions and helps you act consistently when customers don’t pay.