Write-Off

What is a write-off?

A write-off is an accounting action that removes an uncollectible amount from your books. When you've exhausted efforts to collect on an invoice and accept you'll never be paid, you write it off. This removes the amount from accounts receivable and records it as a bad debt expense.

When to write off debt

Consider writing off an invoice when:

• Extended non-payment — Multiple collection attempts have failed over several months
• Client is unreachable — They've disappeared or gone out of business
• Bankruptcy — The client has filed for bankruptcy
• Cost exceeds value — Further collection efforts would cost more than the debt
• Legal advice — An attorney advises the debt is uncollectible

Tax implications

Writing off bad debt can provide a tax deduction—you shouldn't pay taxes on income you never received. Keep documentation of the original invoice, your collection efforts, and why you determined the debt was uncollectible. Consult with your accountant about the proper way to record write-offs for your situation.