When you write off bad debt in QuickBooks that means you’ve tried everything to get paid but for some reason you’ve given up and you’re accepting the fact that you’re not going to collect the full amount owed to your company. This can happen for many reasons, but no matter the cause, it can have a huge impact on your business, so it’s in your best interest to keep bad debt write offs to a minimum. This of course is easier said than done; in order to reduce the frequency of writing off bad debt in QuickBooks, you need to understand the impact it’s having on your business, recognize the warning signs of impending write-offs, have a plan to manage them, and have the tools and strategies in place to put your plans in motion. It’s a big job, but this blog can help you get started.
Understanding the impact of bad debt write-offs
Many write-offs are rooted in an invoice dispute or an invoice that has gone far beyond terms without being noticed by a collector. We know from our research that the longer an invoice goes unpaid – the less likely that it’ll ever be paid – or at least paid in full. Allowing an invoice to age to just 90 days means that you’ll be lucky to collect just 74% of the balance due; and forget about trying to collect on invoices older than 12 months – only 10% of these will be paid.
Further, debt write-offs can cost you thousands of dollars. Research shows that businesses across industries write-off approximately 4% of credit sales annually. So if you sell $5 million on credit, you’re losing $200,000 each year because you are unable to collect what is owed to you, maybe more if you are above that average 4%- how much more would you need to sell to make up for that loss?
Recognize the warning signs:
As mentioned above, the first sign of an impending bad debt write off in QuickBooks is an invoice dispute. When a customer begins to balk at payment and disputes an invoice, you need to get to the bottom of it as soon as possible. If you are able to quickly recognize and act on this you may be able to rectify the situation to collect payment or, at the very least, avoid the same thing from happening in the future.
For many companies though, identifying a dispute and handling it correctly is extremely difficult- we wrote a dispute management guide to make it easier.
The right tools and strategies for the job
If you find that your write offs of bad debt in QuickBooks are often due to customers being simply unable to pay you, this may be a sign you need to be pickier about who you extend credit to, how much credit you give customers, and how much time you give them to pay. We suggest any company who sells on credit uses credit application to gather the customer’s financial information required to make an informed decision about whether or not to extend credit; this should be done both for new and existing customers before a credit sale is made.
Use our business credit application template to make this processer faster and easier and to ensure you are asking all the right questions.
You may also want to take a close look at your processes, are they the reason you’re having a hard time collecting what is owed to you? This is another common cause of bad debt write-offs. With QuickBooks alone you are left with manual processes built around spreadsheets and aging reports- they may have useful information in them, but updating information and entering data sucks up valuable time you could be spending on dispute prevention and management.
Anytime Collect, accounts receivable management software for QuickBooks can help by integrating with QuickBooks to centralize all of your invoice information into once place. Designed exclusively for QuickBooks, the system allows you to use statistical cash forecasts, automate email communications, manage business credit applications and credit reports, automate dispute management, and much more. Does it work? Studies show that companies who automate receivables with solutions like Anytime Collect recognize a 15-25% reductions in bad debt, not to mention reductions in days sales outstanding and improvements in collector productivity.
Anytime Collect for QuickBooks is available for a low monthly subscription price from Intuit’s Apps.com. Click below to take your first step in reducing Bad Debt in QuickBooks and start your free trial today!