When Should You Write Off an Uncollectible Customer Invoice?

Start with recoverability, rather than age alone. A late customer who acknowledges the balance and follows a credible payment plan needs a different decision from a party whose business has closed and from whom no recovery is expected.

Ask your CA which accounting framework and loss-recognition policy your books follow; do not adopt another business's ageing cut-off as an accounting rule.

Use the receivables collection routine guide to organise follow-ups before the monthly review. Recommend a write-off only after the reviewer can explain the balance, the recovery evidence and the amount proposed.

Prepare one review pack for each proposed write-off. The checklist below is a recommended control, not a universal statutory document list.

• ✓Invoice details, agreed payment terms and evidence that the goods or services were supplied.
• ✓A reconciled party ledger showing receipts, advances, credit notes and the exact unpaid balance.
• ✓Collection notes recording contact attempts, replies, broken commitments and any proposed payment plan.
• ✓The reason recovery is unlikely, supported by available correspondence or other reliable records.
• ✓Any dispute, settlement proposal, guarantee, security or recovery action that could change the expected receipt.
• ✓The amount proposed for write-off, the amount still expected, and the reason for any split.

Check unmatched bank receipts before proposing a loss. Follow the bank reconciliation monthly routine guide so that money already received does not remain hidden behind an overdue invoice.

Set a written authority rule. Have accounts prepare the reconciliation, the person responsible for collections explain the recovery position, and the authorised owner or finance approver accept or reject the proposal. Where practical, keep preparation and approval with different people.

The approval should identify the invoice, amount, reason, supporting records, proposed entry and whether collection will continue. Ask the CA to review accounting or tax questions separately. An internal signature does not establish tax eligibility.

Find out whether the customer cannot pay or challenges what was billed. Investigate missing deliveries, rejected work, wrong prices and unrecorded returns before choosing an entry.

Keep unresolved items visible in the review pack. Do not label a billing correction as bad debt merely to clear an old balance.

Under a simple direct write-off approach, the entry debits bad-debt expense and credits the customer receivable. Where a loss allowance already covers the amount, the write-off generally uses that allowance against the receivable instead of charging the same loss again. Confirm the entry and any allowance shortfall with your CA.

1. Post and allocate all receipts and valid adjustments first.
2. Confirm the approved amount and whether an allowance already exists.
3. Record the entry against the specific customer and invoice, with the approval reference.
4. Check that the party ledger, receivables control account and outstanding report agree.
5. Retain the original transaction and supporting records alongside the adjustment.

These are simplified entry patterns, not instructions to reverse sales or GST. Have the accountant confirm the treatment for the framework your business follows.

Illustrative example: an invoice has an outstanding balance of Rs 50,000. A receipt of Rs 20,000 is allocated to it, leaving Rs 30,000. The review supports recovery of another Rs 10,000 and no recovery of the remaining Rs 20,000. If approved under the applicable policy, write off Rs 20,000 and keep Rs 10,000 outstanding. Do not write off the full remaining balance.

If money arrives after a write-off, link the receipt to the original invoice and write-off record. Ask the accountant to use the appropriate recovery or reversal entry; do not create a fresh sales invoice for collecting the old debt. Review any related tax treatment separately.

Keep the customer's original invoice, receipts, adjustments, approval and later recovery together. Maintain a separate written-off balance schedule if the accounting software removes these items from normal collection reports.

A bookkeeping write-off does not automatically qualify for an income-tax deduction. Income-tax law sets its own conditions for bad-debt deductions. Have your CA assess the applicable law and tax computation separately.

Keep a tax-review note alongside the accounting approval. Record whether the deduction was claimed, deferred or disallowed, with the CA's explanation. This helps a later recovery receive the right review without assuming that the original book expense was deducted for tax.

• Clearing every old invoice automatically, without reviewing recovery evidence.
• Writing off a balance before allocating receipts or investigating a dispute.
• Charging another expense when an existing allowance already covers the loss.
• Treating accounting approval as permission to waive payment or claim tax relief.
• Deleting the invoice or party history after clearing the outstanding balance.

Add the approved write-off schedule and unresolved decisions to your monthly finance review. The finance operations guides hub brings together the collection, bank reconciliation and other routines that support this check.