If you haven't received a payment and you now no longer expect a payment from a delinquent customer, you can apply a bad debt credit to the customer's open sale to close the customer's account.
On the other hand, if you've received a payment but the payment "bounced" you'll first reverse the payment and then apply the bad debt credit.
If you think there is a chance that you may receive payment for the invoice, but it is doubtful, you may wish to set up a bad debt provision. To find out if you can recover any VAT that may have been charged on an invoice, you should contact your Accountant or Customs & Excise and ask about VAT Bad Debt Relief. If you think there is a chance you might receive the money, we suggest you set up a bad debt provision, rather than removing it (writing it off) from your books.
The provision will reduce the value of your Debtors to show that you don't think you'll get paid, but the debt will still remain on your sales ledger reports so it will appear on statements you send to the customer.
Click below for the step-by-step procedures:To use a customer credit to remove a customer's bad debt
To track a bounced payment from a customer