---
title: "What is bad debt expense?"
description: "Bad Debt Expense explained in plain English: definition, how it works, an example, and how it appears in QuickBooks and Xero."
url: https://ledgerbpo.com/glossary/bad-debt-expense/
updated: 2026-09-11
publisher: LedgerBPO (SS Support Network LLC)
language: en-US
---

# What is bad debt expense?

Glossary

Bad debt expense is the cost recorded when a business determines that money owed by a customer will likely never be collected. It reduces both the reported accounts receivable balance and net income.

Updated September 2026

## How bad debt expense works

Not every invoice gets paid. When a customer cannot or will not pay, the business writes off that amount as bad debt expense rather than continuing to count it as an asset it will never actually collect. Businesses usually estimate this cost throughout the year using a percentage of sales or a review of old invoices. A business with a long history of late-paying customers usually builds a higher bad debt estimate into its forecasting than one with reliable customers.

Most businesses record an estimate of bad debt through an allowance for doubtful accounts, then apply it to specific invoices once they are confirmed uncollectible. This keeps accounts receivable from being overstated on the balance sheet and gives a more realistic picture of cash the business actually expects to collect. Writing off bad debt too aggressively can overstate expenses, while waiting too long can leave the balance sheet showing receivables that will never actually be collected.

## Example

A wholesaler has $50,000 in total accounts receivable and estimates 3 percent, or $1,500, will never be collected based on past experience. It records $1,500 as bad debt expense and reduces the net receivable balance to $48,500, which better reflects the cash it actually expects to receive from customers.

## Bad debt expense in QuickBooks Online vs Xero

QuickBooks Online lets you write off an invoice as bad debt directly from the invoice screen, which posts to a bad debt expense account automatically. Xero handles this by applying a credit note to the unpaid invoice and coding it to a bad debt account. Both remove the invoice from the active aging report once written off. A written-off invoice can usually still be reopened later if the customer unexpectedly pays after all.

## Related terms

- [Allowance for doubtful accounts](https://ledgerbpo.com/glossary/allowance-for-doubtful-accounts/)
- [Aging report](https://ledgerbpo.com/glossary/aging-report/)
- [Write-off](https://ledgerbpo.com/glossary/write-off/)
- [All terms](https://ledgerbpo.com/glossary/)

## How LedgerBPO handles bad debt expense

We monitor your aging report and flag invoices that are unlikely to be collected, so you can make an informed decision on writing them off. A dedicated accountant records the write-off correctly and keeps your accounts receivable balance realistic. You get cleaner books and an accurate picture of collectible revenue. We only recommend a write-off after collection efforts through our DunningDesk process have been exhausted.

[Get paid faster with a dedicated AR desk](https://ledgerbpo.com/services/accounts-receivable/)

Next step

## Books closed. Invoices paid. Every month.

Tell us what is going on with your books or billing. You will hear from a named person within 1 business day, with a custom quote and a plan for the first close.

- Reply from a named person within 1 business day
- No setup fee, month-to-month
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Source: https://ledgerbpo.com/glossary/bad-debt-expense/ · Contact: https://ledgerbpo.com/contact/ · Full site map for agents: https://ledgerbpo.com/llms.txt