Bad Debt: When to Write Off an Invoice, and How to Avoid Getting There

There is an invoice on your books for ₦480,000 from a contractor who stopped replying in March. You still send the occasional email. You still count it in what you are owed. Nobody has said the invoice is dead, so it sits there, quietly making your receivables number look better than your business actually is.

Chasing a dead invoice is not free. It costs you the hours you spend on it, the attention you take away from customers who would pay you this week, and the honesty of your own numbers. If you think you are owed ₦3,000,000 and ₦480,000 of it is never coming, you are planning your month around money that does not exist. Deciding an invoice is gone is not giving up. It is refusing to keep lying to yourself.

Signals it is not coming back

No single sign proves an invoice is dead, but these stack up fast:

• The customer has gone properly silent. Not slow, silent. Six or more contacts across several months, by email and phone, with nothing back. Someone who intends to pay eventually answers, even if the answer is an excuse.
• They cannot pay, and you know it. The business has closed, the office is empty, other suppliers in your network are chasing the same money, or they have entered insolvency proceedings.
• They have stopped buying and never disputed the invoice. A customer with a genuine complaint tells you what it is. A customer who neither pays nor complains nor orders again has made a decision.
• The debt has aged out. Once an invoice passes 120 days with no payment and no contact, the odds of collecting in full are poor, and they get worse each month.
• Every escalation has already failed. You went above your contact, sent a formal demand letter, and got no response.

One signal means keep chasing. Three or four together mean you already know the answer.

The honest math on when to stop

Put a price on your own time. If an hour of your attention is worth ₦15,000 and you have already spent six hours on a ₦200,000 invoice, you have spent ₦90,000 chasing it. Add the next six hours and the invoice starts costing more than it pays, even if it eventually lands.

A rule that holds up for most small businesses: once the cost of chasing passes roughly a third of the invoice value, and your last three contacts produced nothing, stop. If the amount justifies a solicitor's letter or a collection agency, hand it over and get on with your work. If it does not justify that, it does not justify another six months of your Monday mornings either.

Being clear-eyed beats being stubborn. The ₦200,000 you refuse to let go of is usually blocking the ₦900,000 you could have collected in the same hours.

What writing it off actually means

Writing off bad debt is an accounting entry, not a moral event. In plain terms: you accept the invoice will not be paid, remove it from what you expect to receive, and book the amount as an expense (bad debt). Your receivables figure drops to something true, and your profit drops by the amount you never collected.

That last part surprises people, and it goes back to how profit and cash come apart. You booked the sale as profit the day you invoiced it, and you have been planning (and possibly paying tax) around money that never arrived. The write-off is the correction.

Exactly how and when you record it (and what you may reclaim on VAT or tax) depends on your books and your jurisdiction, so confirm the treatment with your accountant before you post anything. What matters for you is the discipline: an invoice you have privately given up on should not still be sitting in your receivables.

Writing it off does not mean forgiving the debt. If the customer resurfaces and pays, you record the recovery then. It just means you stop counting money you do not expect.

Stopping the next one

Bad debt is mostly created upstream, months before it goes bad. A few fixes that remove most of it:

Vet new customers before you extend credit, even lightly: a quick search, a reference from another supplier, one job paid up front. Keep them on short terms or a deposit until they have paid you reliably a few times. And be honest about how much exposure you can carry with any one customer. If a single client owes you ₦5,000,000 and your monthly costs are ₦2,000,000, that is not a receivable, it is a risk.

Then chase early and consistently, because most bad debt starts as an invoice nobody followed up on. The habits that get you paid faster are the same ones that stop invoices reaching 120 days. An invoice chased at day 3 rarely becomes an invoice you write off at day 180.

Keep the number true

The point of a write-off is that the number on your receivables report is a number you can trust. Arvalox helps you get there: it ages every invoice, flags the ones that have stopped moving, shows you how many contacts an invoice has already had, and keeps written-off invoices out of what you are counting on, so the money you think is coming is money that is actually coming.