Bad debt: deciding when to stop chasing and write it off

Every business has invoices it is never going to collect, and most carry them for far too long. A bad debt is not an unpaid invoice — it is one you have decided to stop pursuing, and making that decision explicitly is the whole discipline. Until somebody does, the amount sits in your accounts as an asset, flatters your figures and quietly consumes the attention of whoever keeps re-reading the same chase list.

When a debt becomes a bad debt

• The customer has become insolvent, which usually ends the question immediately.
• They dispute it and you have decided not to litigate — a commercial decision rather than a legal one.
• The cost of recovery exceeds the amount, which is the common case for small balances.
• They cannot be contacted, and the trail has gone cold rather than merely quiet.
• Enough time has passed that your own policy says to stop, which is why having a stated threshold matters.

The arithmetic nobody does

Chasing has a cost, and for small balances it exceeds what is owed within a few attempts. An hour of somebody's time spent on a hundred-pound invoice has already lost money, and the fourth reminder is almost never the one that works. Decide a floor below which you send two reminders and then write off, and spend the recovered attention on the balances where it changes something. The uncomfortable truth is that a stated write-off threshold collects more in total than chasing everything, because the chasing gets aimed.

Writing off internally is not the same as releasing the debtor. In many jurisdictions you can write the amount out of your accounts, reclaim the sales tax you already paid on it, and still pursue the money later if circumstances change — the accounting entry and the commercial position are separate decisions.

Doing the write-off properly

1. Record the decision with a date, an amount, a reason and who approved it, because an unexplained write-off is the one an auditor asks about.
2. Check the sales tax position — most regimes allow relief on bad debts after a stated period, and claiming it is not automatic.
3. Stop the automated reminders, which otherwise keep arriving and undermine any future conversation.
4. Flag the customer so the same credit is not extended again by somebody who does not know.
5. Keep the paperwork rather than deleting the invoice; the write-off is an entry about it, not the removal of it.

Preventing the next one

Most bad debts were visible early — an order taken without a credit check, terms nobody agreed, a first invoice paid late and the second sent anyway. The defence is not harsher collection but noticing earlier: a customer who pays the first invoice thirty days late is telling you something, and the response belongs before you extend further credit rather than after. Write-offs are the output of decisions made months before, which is why reviewing them annually as a group teaches more than handling each one as an incident.

Ettex Invoices keeps the written-off amount against the customer with the date and reason rather than quietly removing the record, so the history is there when the same name reappears. The pattern across a year shows up in the ageing report, which is where the earlier warning was available.