Stopping is sometimes the right call. Here is how to do it so it costs you as little as possible.
Some debts are not going to be recovered. Recognising that early is not defeatism, it is the decision that stops a bad debt becoming a bad debt plus costs.
The debtor has ceased trading with no assets. The company is dissolved and not worth restoring. An insolvency practitioner has been appointed and you are an unsecured creditor. The debt is time-barred. Or the realistic recovery is smaller than the cost of the next step.
Any of those and the honest answer is to stop. We will say so, and being told costs you nothing — which is rather the point of charging a fee for work rather than a percentage of the recovery.
Three different things that get muddled, with different consequences.
A provision is an estimate that a debt may not be collected. The debt still exists in full and you are still pursuing it.
A write-off is the accounting recognition that a specific debt will not be collected. The debt still legally exists — you have not forgiven it, you have stopped expecting it.
A credit note cancels the invoice. That is a different thing entirely and it is the one to be careful with. Raising a credit note to tidy up a bad debt says the sum was never properly due, which can undermine a later claim and is the wrong treatment for VAT. If the customer simply did not pay, write the debt off — do not credit the invoice.
Where you accounted for VAT on an invoice that was never paid, VAT bad debt relief can be claimed once the debt is more than 6 months past its due date and has been written off in your accounts. On a large bad debt this is real money, it does not depend on the customer being insolvent, and it is regularly missed.
Illustrative, and the tax treatment is your accountant's call rather than ours — rates and eligibility depend on your circumstances. The point is that a dead debt is not worth nothing, and the recovery is administrative rather than legal.
Both of those are your accountant's territory, not ours. They are the first call once a debt is dead, and if you would rather it all sat in one place, Buzz Accounting is the same group.
A write-off is an accounting decision, not a legal surrender. The debt still exists and stays enforceable for 6 years from when it fell due. Debtors reappear more often than people expect: a dissolved company can be restored, a struck-off director starts a new venture, a customer with no assets acquires some.
Keep the invoice, the contract or order, the correspondence, and any acknowledgement of the debt. Note the limitation date in your own records. And remember that a part payment or written acknowledgement restarts the clock — which occasionally makes an old written-off debt live again, and is worth checking for before you conclude anything is out of time.
A dissolved company cannot be sued. If there was something worth recovering — assets that passed to the Crown, an insurance policy that would respond, or a claim worth pursuing — the company can be restored to the register, after which it is treated as having continued in existence throughout.
That is only worth doing where there is something at the end of it. Restoration costs money and does not create assets. Where there is a genuine target, it is work Buzz Legal does on a fixed fee — see restoring a dissolved company.
One bad debt is bad luck. A pattern is a process problem, and it is usually one of four: credit given without a check, terms that were never incorporated, chasing that started too late, or escalation that never actually happened.
Each is cheaper to fix than to keep paying for — see credit control and payment terms that get you paid.
No. A write-off is an accounting entry recognising that you do not expect to collect. The debt remains legally due and enforceable for 6 years from when it fell due, and longer if the debtor acknowledges it in writing or makes a part payment. What does give up the right is a credit note, or a written agreement to release the debtor. Those are legally different and should only be used when you actually mean them — for instance as part of a settlement where the customer pays part and you release the balance. If the customer simply has not paid, write it off and keep the file rather than cancelling the invoice.
Broadly: the debt must be more than 6 months past its due date, you must have accounted for the VAT to HMRC already, and the debt must be written off in your accounts. You then reclaim the VAT element on your return, and you have to keep records showing the relief was properly claimed. The mechanics, the record-keeping and whether your particular debt qualifies are your accountant's area rather than ours — we are flagging that the relief exists and is very frequently missed, not advising on your tax position. There is also a corresponding obligation on the customer's side, and a clawback if the debt is later paid, so it is not something to handle casually.
Debt sale exists, and for a large ledger of small consumer-style balances it can make sense. For commercial trade debt it is usually a poor deal: prices for aged unsecured commercial debt are low, often a small fraction of face value, and you lose all control over how your former customer is treated. That last point matters more than people expect. If the debtor is in the same trade, or shares customers with you, having an unknown third party pursue them in your name is a reputational risk you cannot manage. For one meaningful invoice, a properly costed letter before action is almost always the better answer than selling it — and if that fails, the write-off plus the VAT relief usually beats the sale price.
Not necessarily. A dissolved company can be restored to the register, and on restoration it is treated as having continued in existence as if it had never gone — so a claim that was impossible becomes possible again. Whether it is worth doing depends entirely on what is there at the end. Restoration is worthwhile where assets passed to the Crown as bona vacantia, where there is an insurance policy that would respond to your claim, or where the company has a claim of its own worth pursuing. It is not worth doing to obtain a judgment against a company that had nothing when it was struck off. It costs real money, so it only makes sense on a debt of some size with an identifiable target.
For a simple contract debt, 6 years from the date the cause of action accrued — in practice, from when the payment fell due rather than from the invoice date or the date of the work. After that the debtor has a complete defence if they raise it. Two things restart the clock, and they catch people out in both directions. A written acknowledgement of the debt by the debtor, and a part payment, each start the six years running again from that date. So a debtor who emailed 'we know we owe you, bear with us' three years ago has reset it — and a debt you assumed was dead may be very much alive. It is worth checking the correspondence before writing anything off as out of time.
The letter-before-action checklist, the interest and compensation rules, and the escalation ladder with what each step costs. One email, no sequence.
Tell us what you are owed and who owes it. You get back what the debt is actually worth once interest and compensation are added, what we would do first, and the fixed fee for doing it.