Avoiding the write-off trap – A new approach to dealing with late payment and ‘bad’ debt

June 3, 2021

Research undertaken by Xero last year found that SMEs had £131 billion tied up in late payments and bad debts. This is an eye watering amount – and that was before the economic impact of COVID-19.

But are these so-called bad debts really bad debts? Our experience is that, in most cases, a debtor will be left to age, maybe with some chasing by the credit control team, until the year end. At this point, the SME’s accountant will ask whether management wants to make a provision for it or write it off. Most will just write it off on the basis they have neither the time, inclination, nor money to pursue the debt.

The trouble is that this behaviour, mindset and recovery process create the multi-billion-pound blockage to SME cashflow that we mentioned earlier. So we have set out below (and via a pdf, for those looking for more detail) our simple step-by-step guidance to help you break the status quo and improve your cashflow position.


Strengthen your terms and conditions. If you have not had a chance to review them for a while, then now is the time to put that right.


Issue your invoice promptly. Remember that you are working to your trading terms, unless otherwise agreed, and should not look for payment beyond 30 days. Then await payment of your invoice. Some late or non-payments are, unfortunately, to be expected… and should be managed into Step 3.


Payment has not been made in line with the contractual terms, and you need to recover what is now a late payment.

If you do not yet have a formal credit control process, then adopt one quickly! If you have adopted a credit control process, make sure you use it. A credit control process need not be aggressive or confrontational but it does need to be firm and achieve a purpose: a recovery of the monies you are owed or a clear understanding of when and how you will make a recovery.


Be pragmatic – do not waste any more time on repeating the credit control process once 90 days has passed. The goal now is to either take formal action to gain a recovery or qualify it out as a genuine bad debt. We suggest the following steps:

  • Write to the client requesting full and final payment in seven days, otherwise you will have no alternative but to instruct your legal representatives to start a recovery process. If the client wishes to discuss or dispute the payment, they should do so in writing within the 7 days. Then await the response.
  • If the client wants to agree a payment plan that you think is acceptable, then by all means accept it – but make sure you lock it into a formal written agreement that can be relied upon should a further breach occur.
  • If the client disputes payment (it is not happy with the service, quality etc) then provide a formal response. Be clear to highlight that they did not raise any of these issues for the previous three months and request an immediate full payment. It is important to remember that if there had been genuine issues in relation to the service or product you provided, these will have been identified by your credit control process – it is most likely a deflect and delay tactic by the client

If you are unable to secure a payment or agree a payment plan, it is time to begin the recovery process. Use a service like Escalate that removes all your financial risk in pursuing a recovery and reduces management input, so you can remain focused on the rest of your business.

If the debtor is able to pay, then you can take confidence from Escalate or your equivalent that the payment will be made and you can make a sensible provision in your accounts. Remember something back is always better than a write-off.

If a recovery is not deemed possible then you can write-off the debt, deal with the tax implications and move on.

Too many businesses go from a missed 30-day payment into a loose credit control process that drifts for 12 months before the payment is finally written-off. Do not fall into this write off trap – the need to protect and manage your business’ cashflow has never been greater.

Additional information on the four step process is available here.  For more help with tackling late payments and bad debts, please contact your local Escalate partner firm.

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