Write off bad debts in Xero

When a client confirms an invoice to be a bad debt, please follow the steps below to correctly account for it in Xero.

STEP 1: In the absence of an existing Bad Debts account in Xero, create one in Chart of Accounts as follows:

Account type: Overhead
Code: Any code between 450 – 500
Name: Bad debts
Tax: 20% (VAT on Expenses)

STEP 2: Create a credit note

In the sales invoice that requires to be written off, click on the drop down menu “Invoice Options” and choose “Add Credit Note”

To: Client name
Date: When client confirmed the bad debt relates to
Credit Note # : Applied automatically
Reference: Bad debts
Description: Bad debts per client email dated xxx
Unit price: Amount of bad debt
Tax rate: Choose the same VAT rate as the original invoice

Once the credit note is approved, it will automatically be allocated to the invoice.