Bad debt is money a customer owes that is not going to arrive.
Every business has some. A business with none is either very new or very cautious about who it works for.
Why carrying it costs more than writing it off
An invoice you know will not be paid, still sitting on the books, does three things:
It overstates what you are owed, so every figure built on receivables is wrong by that amount — including collectible receivables and any runway calculation that counts them.
It distorts how fast you get paid. A single ancient invoice drags days to get paid upward and hides whether your recent collection is actually improving.
It occupies attention. It appears on every aging report, every month, and gets skipped every month.
Writing it off is a decision, not a defeat
The loss happened when the work was done unpaid. Writing it off does not create the loss — it records one that already occurred, and stops it distorting everything else.
There is usually a tax consequence in your favour, which is your accountant's territory and worth asking about rather than assuming.
Before you write it off
Ask properly, once. A surprising share of very old invoices are administrative rather than refusals, and a direct call reaches people that six emails did not.
Offer a settlement. Recovering sixty percent today beats recovering nothing across two years.
Consider what it is worth pursuing. Formal collection has a cost, in money and in time, and below some figure the pursuit costs more than the debt.
Preventing the next one
Most bad debt traces back to the same few causes: no deposit on a large job, work continued while an earlier invoice went unpaid, and nobody chasing until it was months old.
The strongest control is the simplest — do not start the next job for a customer who has not paid for the last one. See invoicing setup for the chasing side.