This guide outlines the procedure to write off and/or recover written off bad-debts in Xero. 

This and many more guides can be found on Xero Central

Accounting for Bad Debts

The method used to account for bad debt will depend on your GST registration status and how you want the transactions to be recorded in your reports.

• Accrual Basis for GST (most Franchise Partners): You can apply a credit note to the outstanding invoice and code it to the 6010-100 Bad and Doubtful Debts account.
• Cash Basis for GST: You may wish to code the credit note to the same account and tax rate as the original invoice. You can also enter a manual journal using the BAS excluded tax rate to record the sale and bad debts expense. 

Always consult with your accountant/bookkeeper for advice on the best method to record the bad debts for your business.

Write off a bad debt

One way to write off a bad debt is by creating a credit note against the relevant invoice. To do this:

1. In Xero, navigate and open the invoice you want to write off. 
2. If using new invoicing, click the menu icon and select Create and apply credit.
   In classic invoicing, click Invoice Options, then select Add Credit Note.
3. In the Account field, select the same the account code as per your accountants advice (either the same account code as the original invoice or the 6010-100 Bad and Doubtful debts account).
4. Ensure that the tax rate and credited amount are correct
5. Click 'Approve'

Recovering written-off bad debts

If you receive a payment (in part or full) for a bad debt that you've written off,  you will need to:

1. Record the payment using a Receive Money transaction.
2. In the Account field, select the same account you used in the credit note to write the debt off.
3. In the Tax Rate field, choose the appropriate tax rate if you claimed GST when you originally wrote off the debt.

If you posted a manual journal to record the bad debt, reverse the bad debt journal for the amount recovered.