Write-Off

A write-off is the accounting action that removes a receivable deemed uncollectible from the books: the balance is charged against the allowance for doubtful accounts and the customer's AR is reduced to zero (or to the recoverable remainder). It is an acknowledgment of economic reality, not forgiveness; unless the seller deliberately releases the claim, the debt still exists legally, and post-write-off recoveries, from an agency, a bankruptcy distribution, or a customer returning years later, are booked as recoveries when they arrive.

Write-off decisions should follow documented policy: criteria (bankruptcy discharge, agency exhaustion, cost of pursuit exceeding balance, age thresholds for small balances), a documentation standard showing what collection effort preceded the decision, and tiered approval authority, with small balances writable by the credit manager and large ones requiring controller or CFO sign-off. Timing discipline matters in both directions: writing off too eagerly buries collectible money and weakens collection resolve, while carrying dead balances overstates assets, distorts DSO and aging metrics, and clogs collector queues with unworkable accounts.

Written-off accounts deserve an afterlife process. The customer should be flagged so no one re-extends terms without a deliberate decision; balances suitable for third-party work should be placed rather than parked; and the write-off ledger should be mined annually, because reason-coded write-off history is the most honest dataset a credit department has about where its underwriting and escalation actually fail. Small-balance write-offs are a separate hygiene stream: automatic clearing below a tolerance keeps the ledger clean, with monitoring to ensure customers are not exploiting the tolerance systematically.