When Trade Credit Has Gone Bad

The scenario

An account you once extended credit to in good faith has gone bad. It is well overdue, the customer has stopped engaging meaningfully, payment promises have failed repeatedly, and your honest assessment is that this debt may not be paid in full — or at all. You have moved past 'is this customer slow?' to 'is this money gone?', and you need to decide what to do with the time and energy you put into it.

Every business that extends credit eventually faces this. The goal now is to make clear-eyed decisions: recover what is realistically recoverable, stop pouring effort into what is not, protect any security you hold, and use the lesson to avoid the next one. Emotion — frustration, a sense of betrayal — is understandable but is a poor guide to what happens next.

What's really going on

A bad debt is partly a recovery problem and partly a decision problem. The recovery side is about what can actually be collected — does the customer have any capacity to pay, do you hold any security or guarantee, is the debt clear and undisputed, and is the customer still solvent? The decision side is about how much more time and money it is worth committing to a debt that may not be fully recoverable.

The trap is throwing good money and good hours after bad — chasing relentlessly out of principle when the realistic return is low. Equally, the trap on the other side is writing off too quickly a debt that a focused, professional recovery effort could collect. The skill is an honest assessment of recoverability: a clear, undisputed debt against a solvent customer is worth real effort; a disputed debt against an entity with no assets may not be. That assessment, not the size of your annoyance, should drive what you do.

Your options

• Assess recoverability honestly. Weigh the customer's capacity to pay, the clarity of the debt, and any security you hold.
• Escalate to professional recovery. A specialist can pursue a clear, undisputed debt more effectively and free up your time.
• Protect any security. Confirm a guarantee, retention of title or PPSR registration is current and act on it.
• Negotiate a settlement. Part-payment now may beat a larger sum you never collect.
• Write off and learn. Where recovery is genuinely uneconomic, write it off cleanly and tighten future credit.

Recommended approach

Make an honest recoverability call first, free of emotion. A clear, undisputed debt against a customer who is still trading and has assets is worth a focused recovery effort — and a specialist will usually pursue it more effectively and faster than continuing to chase it yourself. Before that, check any security: a current guarantee, retention of title or PPSR registration can transform a weak position into a strong one. Where the customer has some capacity but cannot pay in full, a documented settlement for part now can beat a larger figure you never see.

If the assessment says recovery is genuinely uneconomic — no assets, no security, a contested debt against an empty entity — write it off cleanly rather than bleeding more time into it, and feed the lesson back into tighter credit checks and terms. You can refer the debt for a recovery assessment before deciding, and the Academy lesson library covers bad-debt management and tightening credit so the next account is safer.

What to avoid

Do not chase a hopeless debt out of principle — throwing more time and money after a debt with no realistic return compounds the loss. Avoid the opposite error of writing off too fast a clear, undisputed debt that focused recovery could collect; assess before you abandon it. Never forget to check and act on any security or guarantee while it still has value. This is general guidance, not legal, financial or tax advice. The write-off treatment and any enforcement step depend on your circumstances, so take appropriate professional advice.