Debt Write-Off Policy

Why write-offs need a policy

Writing a debt off is a financial decision, not an admission of failure — but made on emotion it costs you twice: once in the lost debt and again in inconsistency. A written policy sets out when a debt is considered uncollectable, what evidence supports that view, and who signs off, so the call is made calmly and on the record. Importantly, writing a debt off in your accounts is a bookkeeping step; it does not extinguish the customer's legal liability, and a written-off debt can still be pursued. This template is general information — confirm the tax treatment with your accountant before you rely on it.

The write-off policy

1. Trigger

A debt is considered for write-off when reasonable recovery effort, including referral, has been exhausted, or the debtor is insolvent or untraceable.

2. Evidence

The file must show the collections history, any demand and referral, and the reason recovery is no longer viable.

3. Authority

Write-offs up to $[amount] are approved by [role]; above that, by the owner or board.

4. Accounting

The debt is written off in the ledger in line with advice from the accountant, including any GST adjustment.

5. Liability preserved

Writing off internally does not release the debtor; the claim may be revived if circumstances change.

6. Records

Each write-off is logged with the amount, the approver, the date and the reason.

How to use it

Treat write-off as the last station on the line, not a shortcut around hard collections — the trigger only fires once you have genuinely worked and, where appropriate, referred the account. Before you write anything off, satisfy yourself the recovery path is truly exhausted: many debts that feel hopeless in-house are still collectable on a commission-only basis, so consider whether to refer the debt first. Record the amount, approver, date and reason every time, and have your accountant confirm the tax and GST treatment. Run the assessment against the same evidence as your bad debt provisioning checklist so your provisions and write-offs line up.

Review what you write off

Your write-off log is a quiet diagnostic. If the same kind of customer keeps ending up there, the problem usually sits upstream — in credit approval, terms, or how early you escalate — not in the write-off itself. Review the log at least annually against your provisioning and approval policies, and tighten the front of the process where the losses cluster. Writing off cleanly is fine; writing off the same mistake repeatedly is not.