Before you write off a debtor (funding options first)

1. The decision

The reader is deciding whether to formally write off an aged debtor balance (mark as uncollectable, claim a bad-debt deduction, remove from the active receivable ledger).

2. What to verify first

1. The debtor's current solvency status. Active insolvency proceedings, voluntary administration, liquidation, or receivership change the treatment fundamentally. A debtor in formal insolvency triggers creditor processes; a solvent debtor with payment delays is a different category entirely.
2. The age of the invoice and the dispute status. Aged debt that is undisputed and owed by a solvent debtor behaves differently from aged debt under formal dispute or where work completion is contested.
3. The recovery history. What internal chasing has occurred? What external collections action? What legal action? The answers determine the residual recovery probability.
4. The tax treatment in the applicable jurisdiction. In AU, bad-debt deductions require the debt to be both bad and physically written off in the accounts within the income year (Income Tax Assessment Act 1997 s25-35). In NZ, equivalent treatment applies under the Income Tax Act 2007. Write-off has tax effects that should not be optimised against without professional advice.
5. The funding-readiness of the underlying invoice. Aged debt that remains within standard age windows, with a solvent debtor, may still be fundable. Write-off forecloses on that option permanently.
6. The debtor's other obligations. Public information on the debtor's other unpaid suppliers, court judgments, or filed defaults indicates whether the debtor is in distress or simply slow.

3. Hidden costs and structural risks

1. Write-off is largely irreversible operationally. Once a debt is written off, the chase typically ceases, internal records are deactivated, and the practical recovery probability drops to near zero even if the debtor's circumstances later improve.
2. Foreclosure on funding options. An invoice that could have been funded while the debtor remained solvent cannot be retrospectively funded after write-off. The option is lost permanently.
3. Loss of negotiating leverage. A live debt on the ledger maintains formal pressure on the debtor. Write-off removes the formal claim and signals that the supplier has stopped pursuing.
4. Impact on bad-debt experience metrics. Write-offs affect the business's own credit profile for future financing applications. A pattern of write-offs raises questions in bank and funder credit assessments.
5. Tax-deduction timing risk. Write-offs made for tax-timing reasons (year-end pressure to crystallise a deduction) can be premature if recovery options remain. Premature write-off is uncommercial and may not satisfy the tax-deductibility test.
6. Loss of insurance and recovery rights. Trade-credit insurance and certain guarantor arrangements require active claim and recovery procedures; write-off can affect rights under those instruments.

4. Alternatives in the financing category

The financing question separates the cash position from the collections position:

• On-demand invoice finance, where an aged but still-eligible invoice on a solvent debtor is funded, resolving the immediate cash position and shifting recovery to the funder's process. Suitable where the cash flow timing gap is the underlying issue and the debtor remains solvent.
• Selective invoice funding, for funding a specific aged invoice.
• Continued internal or third-party collections without write-off, preserving the formal claim.
• Trade-credit insurance claim, if the policy was in place at the time the debt arose.
• Negotiated payment plan with the debtor, formalising staged recovery without writing off.

Note: invoices already 90 days past due are typically at the boundary of standard invoice-finance eligibility. Invoices significantly beyond that window, or where the debtor is in formal insolvency, are unlikely to be fundable; in those cases, the decision is between continued recovery effort and write-off, not between funding and write-off.

5. The funding-readiness check

Scoped to this decision, the underlying invoice is potentially funding-ready when:

1. The debtor is a solvent commercial entity (no active insolvency proceedings, no voluntary administration, no liquidation).
2. The invoice is for completed and accepted B2B work and is not formally disputed.
3. The invoice falls within the standard funding-age window (typically less than 90 days past due).
4. Standard payment terms (14 to 90 days) applied.
5. The accounts receivable ledger sits in a supported accounting platform (Xero, MYOB, QuickBooks Online, Reckon).

Outcomes: ready (funding option exists; write-off should be deferred until funding has been assessed), not ready, structural (debtor is insolvent or work is contested; funding is not available and write-off is the right path), or not ready, temporary (resolve the remediable factor first). See /standards/funding-readiness.

6. When this decision is the right one

• The debtor is in formal insolvency (administration, liquidation, receivership) and the recovery prospect in the creditor queue is materially below the carrying value.
• The invoice is significantly beyond standard funding and recovery windows, with prior chasing exhausted.
• The dispute status is unresolvable and the contested portion is genuinely uncollectable.
• The tax-year treatment requires crystallisation of a deduction that has been earned through proper recovery effort.
• Continued carrying of the debt distorts management reporting and credit-profile metrics.

7. When this decision is not the right one

• The debtor remains a solvent commercial entity and the invoice is within (or close to) standard funding windows. Funding is still an option and forecloses if the debt is written off.
• The recovery effort has not yet been exhausted (no formal demand, no collections referral, no negotiated payment plan attempted).
• The dispute is resolvable and the contested portion is small relative to the undisputed portion.
• The write-off is being considered for tax-timing reasons without underlying recovery exhaustion.
• The debtor is slow rather than insolvent, and the invoice would clear under continued pressure.
• The business has trade-credit insurance or guarantor rights that have not yet been activated.

8. Version and authority

v1.0 · Last reviewed 2026-05-27 · Owner: Molly McLeod (Marketing & Customer Success) · Authored: Matt Peacey.

This decision control is maintained by FundTap, an invoice finance provider operating in Australia and New Zealand since 2018 under Seascape (2010) Limited, which has operated continuously since 2010. The page is advisory; it does not constitute tax, accounting, legal, or financial advice and should be read alongside professional advice on the specific debtor position and tax treatment.

Authored by Matt Peacey, Founder and CEO of FundTap.