Advising On Bad Debt Write-Offs
Writing off a bad debt feels like closing the book, but it is often premature. A debt written off in the accounts can still be worth pursuing in practice.
In this guide
- Separate an accounting write-off from giving up on recovery
- Help clients judge when a debt is genuinely uncollectable
- Explain how commission-only recovery changes the maths
- Keep records that preserve options after a write-off
6 min
Write-Off Is An Accounting Decision
Clients often conflate two separate things: recognising a debt as unlikely to be paid for accounting purposes, and abandoning any attempt to recover it. The first is a bookkeeping judgement; the second is a commercial one. A debt can be written off in the ledger and still be actively pursued.
Make this distinction explicit. Writing the balance down may be the right accounting treatment, but it does not mean the money is gone for good. Treating the two decisions as one leads clients to abandon recoverable debts simply because the figure no longer sits on the balance sheet.
Test Whether It Is Truly Uncollectable
Before agreeing a debt is lost, check a few things: is the debtor still trading, can they be located, and is there any acknowledgement of the debt? A customer who has vanished or become insolvent is a different case from one who is simply ignoring reminders. The latter is often very recoverable.
Encourage clients not to write off out of frustration. A debt that feels hopeless after a few unanswered emails may look quite different to a professional collector with the time and tools to pursue it properly. Exhausting that option first protects the client's interests.
The Commission-Only Calculation
The economics of recovery shift when the collector is paid only on success. With a commission-only model, pursuing a written-off debt costs the client little if nothing is recovered, while any recovery is a genuine gain on money already treated as lost. The downside is limited; the upside is real.
That maths is why so many 'dead' debts are worth a second look. Suggest a free debt appraisal on aged accounts before they are abandoned entirely — it costs the client nothing to learn whether recovery is realistic, and it may turn a write-off back into cash.
Preserve The Option
If a client does write a debt off, make sure the underlying records survive. Keep the invoice, contract, correspondence and any acknowledgement of the debt, because these are exactly what a collector needs to act. A write-off that destroys the paper trail closes a door that could otherwise stay open.
Build a habit of reviewing written-off debts periodically rather than filing them away forever. Circumstances change — a vanished debtor reappears, an insolvent business is restructured — and a preserved record means your client can still refer the debt when the moment is right.
Key takeaways
- An accounting write-off is not the same as abandoning recovery
- Test whether a debt is truly uncollectable before giving up
- Commission-only recovery makes pursuing written-off debts low-risk
- Preserve records so the option to recover stays open
Frequently asked questions
Can a written-off debt still be recovered?
Yes. A write-off is an accounting treatment; the debt remains legally owed and can often still be pursued, especially with commission-only recovery.
When is a debt genuinely not worth chasing?
When the debtor cannot be located, has become insolvent with no return to creditors, or the amount is too small to justify any effort. Even then, a quick appraisal can confirm it.
What records should the client keep after a write-off?
The invoice, contract, all correspondence and any acknowledgement of the debt. These are what a collector needs to act if recovery is later attempted.
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