Dealing with bad debts, as uncomfortable as they are, can actually be quite a refreshing process. It means you’ll no longer be reminded of those rude non-paying customers, every time you log into Xero, and it’ll clear your headspace for the more positive aspects of business. But how exactly do you eliminate bad debts correctly from Xero? Thankfully the nuts and bolts are relatively simple and essentially all you need to do is create a credit note and then change the account to Bad Debts. Pictures below for the more visual among you:
A word from the wise (that’s us)! Write off your bad debts BEFORE 31 MARCH to ensure you get a full tax deduction. Leaving it any longer will delay your tax deduction for another twelve months (meaning you’ll pay tax completely unnecessarily on money you’ll never receive). Back-dating won’t work either because IRD auditors are well aware that Xero shows the actual date you (or your chartered accountant) record the bad debt.
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