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Write off an unpaid invoice

What to do if you have an invoice open and overdue in FreeAgent that your customer isn't going to pay you for.

Perhaps they've gone out of business, or won't pay because of a dispute. This is called a bad debt. If the invoice isn't a bad debt, you should create a credit note instead.

Entering a bad debt

It’s very easy to record a bad debt on FreeAgent.

1 Find the invoice

Navigate to the 'Work' tab and select 'Invoicing' from the drop-down menu.


Filter the view to 'Overdue' and select the relevant invoice.


This will open the invoice.

2 Write the invoice off as unpaid

Select the 'Actions' button and choose 'Write-off as unpaid' from the drop-down menu.


You won't see this until the invoice is overdue, i.e. past its due date for payment. If you need to write it off sooner than that, change the due date by selecting the Edit button at the top right of the invoice. Remember the invoice must be in draft before you can edit it, so select the 'Make Draft' button if you need to do this.


FreeAgent automatically writes the invoice off as of today’s date. This might be correct if you’ve only just heard that the debt has gone bad. If you heard before today and are just catching up with your bookkeeping, select the 'Change write-off date' link to change the date to when you heard the debt had gone bad.


If you write off the wrong invoice, you can bring this one back by selecting Reopen.

If you write off the wrong invoice, you can bring it back by selecting the ‘Actions’ button and choosing ‘Reopen’.


If you then navigate to the ‘Contacts’ area of FreeAgent, you’ll see that the amount this contact owes you has either been reduced or has changed to £nil. If it has changed to £nil, there will be nothing displayed as owing or owed for that contact. 


It’s correct for the amount to be £nil if the invoice you have just written off as unpaid was for the only amount left outstanding for this contact. If they owed you for any other invoices for which they are going to pay you, you would still see the amounts of these left on the ‘Contacts’ page.

You can then write off other invoices as unpaid, one by one. The 'Write-off as unpaid' button will also work if a customer has paid you in part for an invoice and you’re writing part of it off.

Caution - VAT

If you're using the invoice method of accounting for VAT, the write-off will reduce the amount of VAT you have to pay to HMRC on your next VAT return, which is called 'claiming bad debt relief'. Be warned though, you are only allowed to claim bad debt relief 6 months after the later of the date of the invoice that wasn’t paid and the date when payment was due for that invoice. But the good news is that FreeAgent will do this for you automatically, so that the bad debt relief is not claimed early.

The write-off in your accounts

Finally, let’s look at what effect the write-off has on the P&L. Go to Accounting > Reports > Profit and Loss, and change the view to include the full accounting year you wrote the bad debt off in. This is because, if you wrote it off today, you won't see the entry if you have the view set to 'Current Year So Far'.

There’s now a new entry in 'Bad Debts Written Off' for this invoice and your profit has reduced (or loss increased) by the amount of the bad debt.


Using the 'Write-off as unpaid' button writes off specific invoices and isn’t a general provision against bad debts. So because you can claim tax relief for specific bad debts, your income tax or corporation tax bill will also be reduced.

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