Writing Off Bad Debt
Knowing when to write a debt off — and doing it properly — keeps your books honest and your effort focused on what is recoverable.
What you'll learn
- What writing off a debt actually means
- When a write-off is the sensible call
- What to do before you write off
- How to keep the decision clean and documented
6 min read
What a write-off is
Writing off a bad debt means recognising in your accounts that an amount owed is unlikely to be recovered and removing it from your receivables. It is an accounting and management decision that reflects reality — it stops a doubtful figure from inflating what your business appears to be owed. Writing a debt off does not, by itself, mean you can never pursue it again.
When it is the right call
A write-off may be sensible when a debtor has become insolvent with little prospect of a dividend, cannot be located, or where the cost and time of chasing clearly outweigh any likely return. The goal is honesty in your numbers and focus in your effort. Carrying obviously uncollectable balances at full value distorts your reporting and ties up attention better spent on recoverable accounts.
Before you write off
Do not give up too soon. First confirm there is genuinely no realistic path: check for a guarantor, any security or PPSR registration, and whether the debtor is simply slow rather than failing. Many debts written off in frustration were still collectable with the right approach — so consider a professional referral before deciding the debt is truly lost.
Keep it documented
When you do write a debt off, record why and when, and keep the underlying invoices and correspondence. Clear documentation supports your accounts, helps any later tax treatment, and provides a trail if the debtor's circumstances change. A tidy record also feeds your provisioning and credit decisions, so you learn from each loss rather than simply absorbing it.
A note on advice
This is general information only, not legal, financial, or tax advice. Accounting and tax treatment depend on your circumstances, so consult your accountant or adviser before writing off a debt.
Key takeaways
- A write-off recognises that a debt is unlikely to be recovered.
- Use it when recovery is genuinely uneconomic or hopeless.
- Check for guarantors and security, and consider referral, first.
- Document the reason and keep the supporting records.
Frequently asked questions
Can I still chase a debt after writing it off?
Often yes — a write-off is mainly an accounting decision and does not automatically end your right to pursue the debt. General information only.
When should I write a debt off?
Typically when recovery is genuinely uneconomic or hopeless, after checking for guarantors, security, and other options.
Does writing off a debt affect my tax?
It may, depending on your circumstances and how the debt is treated. Speak to your accountant before deciding.
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