Uncollectible Invoices

What are Uncollectible Invoices?

Uncollectible Invoices represent invoices that have been written off as bad debt because you've determined the customer cannot or will not pay. When an invoice becomes uncollectible, you reverse the original accounting entries since you'll neither receive payment nor deliver the service.

When an invoice is marked uncollectible:

Account Receivable decreases - No longer expecting payment
Deferred Revenue increases - No longer obligated to deliver service
Taxes increase - Tax liability reversed (won't remit to government)
Recognized Revenue may increase - Any previously recognized revenue reversed

This row appears when invoices are marked uncollectible, not when payment attempts fail.

When to Mark Uncollectible

Invoices are typically marked uncollectible when:

Customer business has closed
Customer filed for bankruptcy
Multiple collection attempts failed
Customer is unreachable
Legal action is not cost-effective
Debt has aged beyond collection period
Customer disputes invoice and won't pay

Important: Consult with your accountant or legal team before writing off large amounts.

Transactions Included

An invoice appears in "Uncollectible Invoices" when:

Marked this month: Invoice marked_uncollectible_at date is within the selected month
Not deleted: Invoice hasn't been deleted
Correct account and currency: Matches selected account and currency

Real-World Examples

Example 1 - Unpaid Subscription (No Service Delivered):

Customer invoiced $1,200 for annual subscription
Customer never paid and business closed
Marked uncollectible after 6 months
Result in Write-Off Month:
- Account Receivable: -$1,320 (including $120 tax, no longer expecting payment)
- Deferred Revenue: +$1,200 (no longer obligated to deliver)
- Taxes: +$120 (tax reversed, won't remit)
- Recognized Revenue: $0 (nothing was delivered)

Example 2 - Subscription Partially Delivered:

Customer invoiced $1,200 annual subscription
3 months of service delivered ($300 recognized)
Customer stops paying, marked uncollectible
Result in Write-Off Month:
- Account Receivable: -$1,320 (stop expecting payment)
- Deferred Revenue: +$900 (remaining 9 months not owed)
- Recognized Revenue: +$300 (reverse the 3 months already recognized)
- Taxes: +$120 (tax reversed)

Example 3 - eCommerce Order:

Customer ordered products for $250 + $25 tax
Products never shipped, customer unreachable
Marked uncollectible
Result in Write-Off Month:
- Account Receivable: -$275
- Deferred Revenue: +$250
- Taxes: +$25

Columns Affected

Column	Effect	Sign	What It Means
Account Receivable	Decreases	Negative (-)	Stop expecting payment
Deferred Revenue	Increases	Positive (+)	Service obligation removed
Taxes	Increases	Positive (+)	Tax liability reversed
Recognized Revenue	Decreases	Positive (+)	Previously recognized revenue reversed

Account Receivable

Account Receivable shows the amount you're no longer expecting to collect.

Why Negative? You're writing off an asset (money you thought you'd collect). The asset decreases, shown as negative.

Calculation: Full invoice amount including taxes (the entire amount owed).

Deferred Revenue

Deferred Revenue shows the portion of undelivered service being released.

Why Positive? You're removing a liability (obligation to deliver service). When liability decreases, it's shown as positive.

Calculation: Invoice amount excluding tax, adjusted for what percentage of service hasn't been delivered yet.

Recognized Revenue

Recognized Revenue shows previously recognized revenue being reversed.

Why Positive? Recognized Revenue is normally negative (income). When you reverse it, it becomes less negative (moves toward zero), shown as positive.

Calculation: Portion of the invoice that was already recognized as income before write-off.

Taxes

Taxes shows tax liability being removed.

Why Positive? You're removing a liability (taxes you would have remitted). When liability decreases, it's shown as positive.

Calculation: Full tax amount from the original invoice.

Uncollectible vs. Voided vs. Refunded

Action	When to Use	Account Receivable	Service Delivered?
Uncollectible	Customer won't/can't pay	Written off	Some may have been
Voided	Invoice was a mistake	Canceled	No
Refunded	Customer paid, now returning money	Already paid (not AR issue)	Some may have been

Revenue Recognition Impact

For subscriptions, the system calculates what portion was already delivered:

Time-Based Example:

$1,200 annual subscription
3 months delivered before write-off = 25% consumed
Deferred Revenue reversal: +$900 (75% undelivered)
Recognized Revenue reversal: +$300 (25% already delivered)

Shipment-Based Example:

12-issue subscription for $120
3 issues delivered before write-off
Deferred Revenue reversal: +$90 (9 issues not delivered)
Recognized Revenue reversal: +$30 (3 issues already delivered)

Tax Implications

When you mark an invoice uncollectible:

Sales Tax: Reversed (you don't remit taxes on uncollected sales)
Bad Debt Deduction: May be deductible as bad debt expense (consult tax advisor)
Reporting: Must be reported properly on tax returns

Important: Tax treatment of bad debt varies by jurisdiction. Consult your tax advisor.

Common Questions

Can I undo an uncollectible marking if the customer pays later?

A: Yes, technically you can reverse the write-off and record the payment. However, this is an accounting adjustment that should be done carefully with your accountant's guidance.

What's the difference between uncollectible and voided?

Uncollectible: Invoice was legitimate, customer just won't/can't pay (bad debt)
Voided: Invoice was created in error and should never have existed

Use uncollectible for non-payment situations, voided for mistakes.

Do I need to attempt collection before marking uncollectible?

A: This depends on your business policies and legal requirements. Generally, document your collection attempts before writing off debt, especially for large amounts.

How does this affect my income statement?

A: The reversal of Recognized Revenue (if any was recognized) reduces your income for the period. The write-off may also create a bad debt expense entry.

What if only part of the invoice is uncollectible?

A: The system writes off the full invoice amount. For partial write-offs, you might use credit notes instead or adjust the invoice amount before marking uncollectible.

Can I see which invoices were written off?

A: Yes! If you have the appropriate permissions, there's a download icon next to this row that lets you export detailed transaction data.

Summary

Quick Reference:

What appears here: Invoices marked as uncollectible (bad debt write-offs)

Inclusion criteria:

Invoice marked uncollectible this month
Not deleted
Correct account and currency

Effect: Reverses the original invoice accounting entries

Account Receivable: Negative (write off debt)
Deferred Revenue: Positive (remove service obligation)
Recognized Revenue: Positive (reverse any recognized income)
Taxes: Positive (reverse tax liability)