Sometimes there are cases where a customer will be issued an invoice that they cannot pay on time. In such situations, you might need to write off the entire invoice (or a specific line item) as bad debt. In OfficeRnD Flex, you can issue a credit note to write off bad debt.
Prerequisites for Recording a Bad Debt
First, we will need to set up some other things prior to the recording:
- Set up a Revenue Account that's called Bad Debt. Here's how to do that.
- Set up a One-off billing plan that has a 0 price and its account can be set to the one we just created. More on how to set up billing plans here.
How to Record Bad Debt
Now that we've completed the preparations, we can lay out all the steps that need to be taken in order to record the bad debt.
Let's say that you've already issued an invoice to the customer and it's currently in overdue status.
1. Open the Company/Member profile, click on the One-off fees tab, and click on the Add Fee button.
In the dialog that opens:
2. Select the Bad Debt plan from the Product drop-down menu.
3. Select Paid from the Status drop-down menu.
4. Enter the bad debt amount in the Price field.
5. Click Add.
Note: You can record "partial" bad debt by issuing a fee that's only for part of the amount of the invoice. It's not necessary for the fee to cover the whole amount of the invoice.
You can then open the invoice that you'd like to mark as bad debt and:
1. Click on the Credit Note button.
2. Deselect all line items.
3. Add the fee that we previously created using the Add existing fee drop-down menu.
4. Finally, after updating the credit note you can allocate it to the invoice that you're going to mark as bad debt using the Allocate credit button in the invoice view.
As result, everything should be reconciled and no amounts should be due for the invoice and credit note.
Tracking Bad Debt
You can track the bad debt that you've issued to customers by taking a look at the Projected Revenue Report. There should be a separate line for the Bad Debt revenue account that denotes what's been marked as bad debt.
There's a total for the whole organization as well as an amount of bad debt per customer: