Bookkeeping · Cleanups & Fixes · Brief · Working level
Old unpaid invoices: collect, write off, or fix the record
Every stale invoice in the AR aging is one of three things: still collectable, genuinely bad, or a bookkeeping error. Triage them in that order — and only true bad debt gets the write-off entry.
An AR aging with a crust of invoices past 90 days is lying to everyone who reads it — the balance sheet overstates what's collectable, and the collections effort wastes itself on ghosts. Every stale invoice resolves into exactly one of three buckets: still collectable, a recording error, or genuinely bad. The cleanup is sorting them, in that order, and only the last bucket gets a write-off entry.
Symptom
The AR aging shows invoices aging past 90, 180, 360 days. The AR total no longer resembles what customers will actually pay. Some "open" invoices belong to customers who paid long ago, closed down, or dispute the bill.
Why it happens
Three causes, usually mixed. No collections routine — invoices go out but nobody follows up, so genuinely collectable balances calcify. Recording errors — the payment arrived but was booked as a deposit to income instead of being applied to the invoice (often leaving the twin symptom of negative accounts receivable elsewhere), or the invoice is a duplicate. Real bad debt nobody wants to admit — writing off feels like losing money, so the loss sits on the balance sheet as a fake asset instead.
The fix
- Run the aging oldest-first and list every invoice over 60 days.
- Check for errors before anything else. Search each customer for unapplied payments, credits, and duplicate invoices. If the payment exists, apply it to the invoice — that's a fix, not a write-off.
- Pursue the collectable. A current statement, a call, a payment plan — the sequence in accounts receivable collections.
- Write off the dead ones (accrual books). Use a credit memo coded to bad debt where possible, so the customer record clears; the entry either way is:
| Account | Debit | Credit |
|---|---|---|
| Bad debt expense | 1,800 | |
| Accounts receivable | 1,800 |
The income was recognized at invoicing; the write-off reverses it through expense. If sales tax was remitted on the invoice, check your state's bad-debt credit rules.
- Cash basis is different — no entry, no deduction. A cash-basis business recorded no income when it invoiced, so an unpaid invoice is not a loss it can deduct; void or zero the invoice to clean the aging and move on. The distinction is the core of accrual versus cash basis, and the method rules live in Publication 538.
- Tie out. The refreshed aging total must equal the AR line on the balance sheet.
How to prevent it
- Invoice hygiene up front — terms on the invoice, sent promptly, per invoicing best practices.
- A monthly aging review as a close step: anything crossing 60 days gets an owner decision — pursue, or write off — on the spot.
- Apply payments to invoices, always, never as free-floating deposits to income.
What to do next
- Run the aging today; bucket everything over 60 days as collect, fix, or write off.
- Post the fixes and write-offs at invoice level; confirm the aging ties to the balance sheet.
- Add the 60-day decision rule to your monthly close.
Frequently asked questions
- How do I clean up old unpaid invoices in my books?
- Triage each stale invoice into one of three buckets: collectable (pursue it), a recording error (the payment exists but was never applied, or the invoice is a duplicate — fix the record), or genuinely uncollectable (write it off with a bad-debt entry). Work the aging oldest-first and resolve every invoice into exactly one bucket.
- What is the journal entry to write off a bad invoice?
- On accrual books, debit Bad debt expense and credit Accounts receivable for the invoice amount, or apply a credit memo coded to bad debt so the customer record clears. Cash-basis books recorded no income when invoicing, so there is nothing to deduct — the invoice is simply voided or zeroed out.
- Can I deduct written-off invoices on my taxes?
- Only accrual-basis businesses can deduct bad debts from unpaid invoices, because they recognized the income when billing. Cash-basis businesses never recorded the income, so an unpaid invoice produces no deduction — you cannot deduct money you never reported receiving. IRS Publication 538 explains the two methods.