Bad Debt: When to Stop Chasing and Write It Off

15 August 2026 · LenDen Team · 7 min read

Write off udhaar when the cost of chasing it exceeds what you would recover — typically after six months of no contact and no payment, and after one formal step on anything large. Writing off is not giving up on the money. It is refusing to let a dead number distort your view of a live business.

Most shopkeepers do the opposite. They carry unrecoverable balances for years because removing them feels like accepting the loss, and end up with a receivables total that is part real and part fiction.

What bad debt actually costs

The loss is not only the amount. Carrying unrecoverable balances does three separate kinds of damage.

It inflates what you think you own. If ₹90,000 of receivables includes ₹15,000 that is never coming back, you are planning against a number that is 17% imaginary. You will feel wealthier than you are and be surprised by cash shortfalls that were arithmetically inevitable.

It consumes attention. Every weekly review where you look at the same dead balance and feel the same irritation is time not spent on the balances that are live and recoverable. Ten dead entries at the top of the list is a reason to stop reading the list.

It distorts the lesson. As long as the balance sits there marked "pending", it reads as bad luck. Written off with a reason, it becomes data: this party had a limit of ₹9,000 when their weekly purchase was ₹800.

When to write off

Four triggers. Any one is sufficient.

1. Six months of silence. No contact, no payment, no response to reminders across half a year. For a small balance, that is enough.

2. The party is genuinely unreachable. Moved away, phone disconnected, business closed, shop shuttered. Nothing to pursue.

3. The cost of pursuit exceeds the amount. For a ₹4,000 balance, an advocate's notice at ₹3,000 makes no sense. Where the arithmetic is against you, the answer is already decided — the detail is in when a customer refuses to pay.

4. The limitation window has closed. Generally three years from when the amount fell due. Past that a recovery suit is normally time-barred, and a balance you cannot enforce is not an asset.

For larger balances, take one formal step before closing: a legal notice from an advocate. Not because it always works, but because it is cheap relative to the amount, it resolves a meaningful share of disputes on its own, and it means you close the file knowing you tried the last sensible thing.

How to write it off properly

The mechanics matter, because the wrong method destroys exactly the information you want to keep.

Do not delete the entries. Deleting brings the balance to zero and erases the record of what happened. You lose the ability to answer "what did we supply, when, and what did they say?" — which matters if they reappear, and matters for the lesson.

Post a write-off entry instead. A dated entry that brings the balance to zero, with a reason:

Date:    15 August 2026
Party:   Ramesh Kumar (Gali 4)
Type:    Write-off / bad debt
Amount:  ₹8,400
Note:    Unrecoverable — shop closed Feb 2026,
         phone disconnected, no contact since
         Jan 2026. Notice not sent (amount below
         threshold).

Now the party's balance reads zero, the ledger shows why, and every original entry survives. If they turn up in a year — which happens — you have the whole history.

This is the same principle as correcting a mistaken entry: adjust with a new entry, never by editing the past. It is what makes a khata able to explain itself, and it is covered further in how to keep a digital udhar khata.

What it does to your accounts

Two things, and the second is the one people miss.

Your receivables drop. That is the intended effect: your outstanding total becomes a number you can trust.

Your profit drops in the month you write off. The sale was recorded as income when it happened; the write-off recognises that the income never converted to cash. So a month with several write-offs will look worse than the trading justified.

That is correct accounting, and it is also useful information — but it means you should not do all your write-offs in one dramatic session once a year. Do them as they qualify, monthly, so the effect lands roughly when the loss actually occurred.

On tax: business bad debts written off in your books can generally be deducted, subject to conditions in the Income Tax Act — including that the amount was previously accounted for as income. The documentation matters. Give your accountant the write-off entries with their reasons and let them handle the treatment; do not assume the deduction, and do not create write-offs for tax reasons that are not genuine.

If a written-off amount later gets paid, record it as a fresh receipt against that party. Your accountant will treat recovered bad debt as income in the year it arrives.

Read every write-off as feedback

This is the part that pays for itself. For each one, ask two questions.

Was the limit too high? Compare what they owed against what they normally spent. A ₹8,400 loss on a customer whose weekly purchase was ₹800 means they were carried at ten weeks of purchases. That is the failure, and it happened long before they stopped paying. The rule that prevents it is in udhaar limits: how much credit should you give.

When did the follow-up start? Look at the gap between the first unpaid entry and your first reminder. If it was six weeks, the write-off was substantially your process rather than their character. Balances chased from day 7 rarely reach write-off; balances first mentioned at day 45 frequently do.

Then look across all your write-offs from the past year together. The pattern is usually embarrassingly clear — often a single category of customer, or a single period when you were too busy to review the list. That pattern is worth more than the money you lost.

Keep the total honest

One number to track: write-offs as a percentage of credit sales. Most small retail shops land somewhere between 2% and 5%.

Below 2% and you may be too conservative — refusing credit to people who would have paid, and losing them to the shop next door. Above 5% and your limits are too loose or your follow-up is too slow.

Look at it once a year, alongside your average days outstanding. Together those two numbers tell you whether your udhaar policy is working better than any individual balance can.

Writing off is not failure. Carrying dead balances for three years because closing them felt like defeat — that is the failure. A clean receivables list you actually believe is worth more than a large one you privately know is part fiction.

The system that keeps write-offs rare is in the complete guide to managing udhaar: a limit per party, an entry the same day, and a reminder on day 7. None of it is complicated. It is just relentless.