Bad debt

Bad debt is money you invoiced but realistically will not collect. It hurts cash flow and can distort how healthy the business looks if you keep aging fantasies on the books forever.

Every business that extends credit (including Net 15 invoices) takes some bad-debt risk. The goal is not zero risk—it is controlled risk with early warning signs and caps on exposure.

Writing off a balance is an accounting and emotional decision. Document your collection attempts so the write-off is deliberate, not neglect.

Common causes include client insolvency, disputed scope with no resolution path, fraud or bad-faith engagements, and simple neglect where the amount is small and chasing costs more than recovery.

Sometimes the root cause is internal: you started work without a deposit, expanded scope without approval, or kept delivering while balances aged past 60–90 days.

Understanding cause matters because prevention tactics differ. Dispute-driven bad debt needs better scoping; insolvency-driven bad debt needs deposits and credit limits.

Repeated broken promises, ignored reminders, disputed line items with no engagement, or a client going quiet after delivery are classic signals.

Requests to “start the next phase” while a large prior invoice is unpaid deserve a hard pause. New work should not fund old debt without a plan.

Sudden changes—returned emails, bounced payments, unexplained short-pays—warrant a same-week phone call, not a wait-and-see approach.

Screen new clients lightly, take deposits on custom work, invoice milestones, and stop extending work when balances age. Prevention is cheaper than recovery.

Set credit limits mentally or in writing: for example, no more than one open invoice or $X outstanding for newer accounts.

Use clearer contracts and change-order processes so disagreements do not silently convert into uncollectible balances.

Send a final notice, consider a settlement offer if it recovers meaningful cash quickly, then decide on write-off versus external collection based on amount and evidence.

Learn the lesson in your next proposal: deposits, shorter terms, or declining similar risk profiles.

What to do next: review any invoice older than 90 days. Either assign an active recovery step this week or mark a decision date for write-off.