How To Write Off Bad Debt: A Guide for B2B Companies

To write off a B2B bad debt, you must prove the debt is legitimate, that you made reasonable collection efforts, and that it's genuinely uncollectable. The deduction reduces your taxable income by the written-off amount. But before you file that paperwork — a question your accountant won't ask: have you actually tried to collect it professionally, or did you just send emails?

You're here because an invoice has been sitting unpaid long enough that your finance team is talking about writing it off. The number is probably sitting in your aged receivables report, getting older and more embarrassing by the quarter. Writing it off feels like closure. But here's the arithmetic nobody presents at the meeting: a €50,000 write-off at a 25% corporate tax rate saves you €12,500 in tax. Professional collection of that same invoice — at a 10% contingency fee — recovers €45,000 net. The write-off gives you closure. The collection gives you cash.

Only after exhausting all reasonable collection options. The IRS, HMRC, and EU tax authorities require documented evidence that the debt is genuinely uncollectable — not just inconvenient to chase. "We sent three emails" doesn't meet that threshold. "We engaged a professional collection agency, they traced the debtor, and the debtor has been dissolved with no successor entity and no assets" does.

The practical trigger points for considering a write-off: the debtor has formally entered insolvency and the insolvency practitioner confirms zero distribution to unsecured creditors. The debtor has been dissolved and struck off the company register with no successor. Or professional collection has confirmed the debt is uncollectable after exhausting all viable recovery routes.

Note what's not on that list: "the debtor hasn't responded to our emails for six months." That's not an uncollectable debt. That's an uncollected one.

Approximately 9% of US B2B credit sales become uncollectable, according to industry research. In Europe, the figure varies by country — Southern European markets tend toward higher default rates than Northern European ones. The global average bad debt ratio for B2B companies is between 1-5%, with anything above 2% considered a warning sign.

But here's what matters: "uncollectable" and "uncollected" are different categories with very different outcomes. An invoice that nobody chased professionally isn't proven uncollectable — it's just abandoned. Many of the invoices sitting in aged receivables reports as "bad debt" would be recoverable with the right approach.

The specific process depends on your jurisdiction and accounting method.

Accrual-basis businesses (most B2B companies): you previously recorded the revenue when the invoice was issued. When the debt becomes uncollectable, debit Bad Debt Expense and credit Accounts Receivable. The bad debt deduction reduces your taxable income.

Cash-basis businesses: you only record income when received. If the customer never paid, you never recorded the income — so there's nothing to deduct. The loss is real but doesn't generate tax relief.

Documentation required: the original invoice, contract, proof of delivery, all collection correspondence, and evidence of why the debt is now uncollectable. The more thorough your paper trail, the safer the deduction in case of audit.

Yes — and if you do, the recovered amount must be reported as income in the year you receive it. This is called "bad debt recovery" and it has tax implications. But complaining about paying tax on unexpected income is arguably the best kind of problem to have.

Your aged receivables report has a number on it. Your finance team wants to clean it up. Before you write that number off, ask one question: has anyone actually tried to collect it — not emailed about it, but professionally pursued it?

Contact us for a free assessment. We'll tell you which invoices are recoverable and which ones genuinely belong on the write-off list.