Bad Debt
Bad debt is money you’re owed that you’ve decided you’re realistically never going to collect — a client who’s vanished, gone under, or simply isn’t worth pursuing further. Writing it off clears it from your books; it doesn’t get you the money back.
What it means
Not every unpaid invoice is bad debt — most late payers eventually pay, given the right reminder cadence. Bad debt is the smaller set that’s actually gone: the client’s business closed, they’ve stopped responding entirely, or the amount is small enough that small claims court or a collections agency would cost more than it would recover.
Writing it off is an accounting decision, not a moral one — it just means you stop counting that invoice as an asset you’ll eventually collect, so your own numbers, particularly your accounts receivable, reflect reality instead of a balance that’s never coming in. It’s worth checking with an accountant on how a write-off affects your specific tax situation.
A client owes you $340 for a job finished eight months ago. They’ve gone quiet, their number’s disconnected, and $340 doesn’t justify a collections agency’s fee. You write it off as bad debt — it stops appearing as money you’re owed, even though it never actually arrived.
Leaving a genuinely uncollectible invoice sitting in accounts receivable for years out of reluctance to write it off — which quietly inflates how much money you think you’re actually still owed.
General information, not legal or tax advice — rates and rules vary by place; check yours. See our terms for the full version of this note.
See also
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- guide How to get paid faster, without the awkward follow-up The reminder cadence here heads off most of what escalates into a real collections problem.
- tool Late payment fee & interest calculator Enter an overdue balance, a rate, and days late, and get the interest, the total now due, and a copy-paste reminder line.
- tool Payment method check Type in your invoice amount, your own card fee, your hourly rate, and how long a transfer usually takes, and compare card, bank transfer, and cash for this one invoice — the fee, your own time, and when the money lands.