- Enquiry
- Quote
- Agree
- Work
- Invoice
- Paid
When to Write It Off
Writing off is a commercial decision and it is made badly more often than any other decision in this sequence — usually by not being made at all, so that a debt stays nominally live for two years while consuming attention.
For a software-side reference alongside this discussion of payment follow-up, disputes, and small-business administration, Monitask has this resource.
The five questions
One. Can they pay? Not will they — can they. A debtor with no assets is not a collection problem.
Two. What is the realistic recovery, discounted for probability? Not the invoice figure. A hundred per cent chance of nothing and a fifty per cent chance of half are different numbers, and only one of them appears on the invoice.
Three. What will it cost to continue? Fees, and the hours at whatever your work is worth.
Four. What else is that effort worth? A day spent chasing is a day not spent quoting, and for a small firm the alternative use is usually the largest term in the calculation.
Five. What is the customer worth in future? Occasionally the answer is that settling for less preserves something more valuable.
The reason people continue that is not a reason
Sunk cost.
"I've already spent three months on this" is an argument for stopping, not for continuing, and it is the single most common reason small firms pursue debts past the point of sense.
The months are gone regardless of what you decide now. The only question is what the next month is worth, and the answer does not depend on the previous three.
The same applies to principle. "It's not about the money" is a real feeling and an expensive policy, and it is worth being honest about which one is operating.
What writing off means
Ceasing to pursue, and recording it.
It does not mean forgiving the debt, which is a different thing. The debt remains, limitation permitting, and a customer who resurfaces or a circumstance that changes can revive it.
Record it properly — bad debt treatment has tax consequences in most jurisdictions, and writing off informally means you carry the loss without whatever relief is available. Ask your accountant once how it should be recorded.
And close the file with a note saying what happened, so that a decision made once is not reopened by accident.
The customer who comes back
They do, occasionally, and the response is a policy rather than a mood.
Work with them again only on payment in advance, and say so plainly: "Happy to, but there's the outstanding balance from before, and anything new would need paying up front."
Some pay the old debt to unlock the new work, which is the best available outcome and arrives free.
And where they will not, you have lost nothing you had not already written off.
Deciding earlier than feels comfortable
Most write-offs happen too late.
Set a point in advance — a number of days, or a stage in the escalation sequence — at which the decision gets made deliberately rather than by drift.
Sixty days for small sums, longer for large ones, and the value of the threshold is that it exists rather than where exactly it sits.
A firm with a stated write-off point spends less time on bad debt and recovers about as much, because the debts recovered late were mostly recoverable early.
What to take from the ones you write off
Each is information about the earlier stages.
Look at where it went wrong. No deposit. No check on the entity. A vague quote. Variations never confirmed. An invoice sent three weeks late.
Almost every write-off traces to one of those, and the point of the review is not self-criticism but the change to the process that prevents the next one.
One review per write-off, ten minutes, and a note of the single thing you would do differently.
The bad debt that was not a bad customer
Worth separating, because the response differs.
A customer who could not pay because their own customer did not is a link in a chain rather than a bad payer, and the chain effect is measured — 42% of small firms report outside pressure delaying what they owed their own suppliers.
They are frequently worth keeping, on different terms: deposits, stages, shorter horizons.
A customer who would not pay is a different proposition, and the distinction is usually visible in how they behaved during the chasing rather than in the outcome.
Telling them
Optional, and occasionally worth doing.
A short note saying the account is closed and the balance written off removes ambiguity and occasionally produces payment — from a customer who assumed you would keep chasing indefinitely and finds the finality unexpectedly uncomfortable.
Keep it factual. No reproach, no invitation to explain. "I've written off the outstanding balance on invoice 214 and closed the account. Any future work would need to be on payment in advance."
Where the relationship is already gone, this costs nothing. Where it is not, it is a clear statement of the position and better than silence that the customer reads as forgiveness.
The one that is not worth the decision
Below a threshold, write it off without deliberating.
Whatever amount is smaller than an hour of your time — the deliberation costs more than the debt, and the deliberation happens several times because a small live debt keeps resurfacing.
Set the number once, apply it silently, and stop reading the reminder emails for anything under it.
The short version
- Five questions: can they pay, what is the probability-weighted recovery, what will continuing cost, what else that effort is worth, and what the customer is worth in future
- Sunk cost is the commonest reason firms continue and it is an argument for stopping — the months are gone either way
- "It's not about the money" is a real feeling and an expensive policy, and it is worth naming which is operating
- Writing off means ceasing to pursue and recording it, not forgiving the debt, which can revive if circumstances change
- Record it properly, since bad debt treatment has tax consequences and an informal write-off forgoes whatever relief exists
- Set the decision point in advance; the value is that a threshold exists rather than exactly where it sits
For broader background on payment follow-up, disputes, and small-business administration, see Harvard Business Review.