When Should You Write Off A Bad Debt?

If you have an outstanding debt that has been bringing down your balance sheet for a while it can be tempting to write it off. Especially if you are convinced that you’ll never recover the money. But writing off a debt should only ever be done as a last resort. Because it’s not just your bottom line that takes a hit when you write off a debt. So does your reputation! So before you wave goodbye to money you’re owed, ask yourself if it’s really the right time to write off a bad debt.

Why Should You Avoid Writing off Debts?

Ideally, you should only ever write off a bad debt when you’ve exhausted every other avenue of debt recovery and you have still been unsuccessful. Unfortunately, many businesses are all too willing to write off troublesome debts without exploring all avenues available. Particularly smaller businesses, who often feel as though they don’t have the resources to chase overdue payments in the same way as businesses with a dedicated credit control department.

In fact, according to research done in 2022, more than a quarter of SMEs reported suffering financially as the result of a bad debt in the previous 12 months. The average amount written off by this type of business was £10,329 each. That’s over £16 billion lost in a single year by small businesses that earned and were owed it. And since SMEs are much less likely to be able to absorb that kind of loss, many suffered huge losses or even closure.

Bring In Debt Collectors Early

If you’ve tried everything to recover a debt yourself – including taking legal action – you might think that you have no option but to write it off. But that’s not necessarily the case. You could put your debt in the hands of a debt collection agency. A lot of SMEs are reluctant to hire debt collection agencies, worried about the impact it could have on their customer relationships. However, hiring a debt collector is about getting valuable support and access to expert advice and experience. Debt collectors have the time and resources to chase those overdue debts effectively while allowing you to focus on your everyday operations. By bringing them in early, you can dramatically improve your chances of recovering the money and saving a lot of time.

Protect Your Reputation

Collecting overdue debts in a timely manner is about much more than just protecting your bottom line. It’s also about protecting your reputation in the industry and among your customers. It’s about protecting your reputation too. After all, it’s not good for any business to get a reputation for being less than diligent in chasing payments. Being lax here is just an invitation for unscrupulous debtors to delay payment over and over, with hopes of getting away with paying nothing at all. Too many customers like that, and your business could really suffer.

Hiring a debt collector to chase overdue debt sends a very clear and definitive message to your customers. A message that you’re prepared to take every action possible to recover what you’re owed. Make sure you’re hiring a reputable agency that will operate with professionalism, integrity, authority and tenacity. Often the very presence of a third party – let alone a debt collection agency – is enough to spur some action from your debtors. So, hiring an agency early can save you money, as well as your reputation.

What Happens If The Agency Is Unsuccessful?

Any debt collection agency should be able to show you records of their success rate – the higher the better! But of course, there will always be debts that are unrecoverable, no matter what the agency tries. Sometimes clients are unable to pay because they’re insolvent, or something else happening that means they are unable to pay or agree to a payment plan. Even legal action can sometimes be unsuccessful. If this is the case, then your debt collector will tell you this. While they may not be able to help further, you can be confident that you have done everything in your power to recover the debt. At this stage, you can write the debt off in good conscience, and you’ll have a clear-cut case for it.

If you’re thinking of writing off a bad debt, or you’re struggling to recover a long overdue debt, we would be happy to help. Our experts are on hand to not only help you recover overdue debts effectively but put systems in place to prevent it from happening again. For more information, just get in touch with the team today to book your free consultation.