What is a bad debt write-off?

A bad debt write-off is the formal accounting decision to stop treating an overdue invoice as a collectible asset. The receivable account decreases, and a bad-debt expense account increases by the same amount. The income statement absorbs the loss, and the balance sheet stops overstating what the business is actually owed. The write-off does not cancel the underlying debt — the customer still owes the money — but the business has concluded that collection is unlikely enough to justify recognizing the loss now.

The timing of a write-off matters on both sides. Writing off too early removes a balance that might still be recoverable with one more phone call or a payment plan offer. Writing off too late means the financial statements have been overstating assets for months. Most accountants recommend a policy-driven approach: invoices that are more than 90 to 120 days past due with no payment plan, no dispute documentation, and no response to follow-up get written off at the end of each quarter, regardless of the amount.

For businesses on accrual accounting, a bad debt write-off is typically deductible in the year the write-off is recognized, provided the income was already reported in a prior period. Cash-basis taxpayers generally cannot take a bad-debt deduction because the revenue was never recognized. Confirming the correct accounting method with your accountant before writing off a material balance avoids mistakes in either direction.