Should you write off or recover?
Writing off a debt feels like drawing a line under it — but it often costs far more than referring it for recovery. Enter your figures to compare the real net outcome of each option.
Your situation
Company rate is 25% (small business) or 30% (base). Use your effective rate if different.
Used to show how much new revenue you'd need to earn to replace the loss.
Comparison
$4,800 better off recovering
Recovery puts more money in your pocket
| Write off | Recover (est. 60%) | |
|---|---|---|
| Amount received | $0 | $6,000 |
| Commission (20%) | — | –$1,200 |
| Net cash received | $0 | $4,800 |
| Tax write-off benefit | $3,000 | — |
| Net benefit | $3,000 | $4,800 |
| Revenue needed to replace loss | $17,500 | $13,000 |
Recovery rate of 60% and commission of 20% are indicative estimates. Actual figures depend on account age, debtor circumstances and documentation. This is not financial or tax advice.
Write off vs recovery: what the numbers actually show
The decision to write off a bad debt is often made on instinct — the account feels too hard, the relationship is gone, or the amount seems too small to be worth the effort. But writing off a debt is not a zero-cost decision. It has real, calculable consequences for your cash flow, your tax position and the amount of new business you need to generate just to break even on the loss.
The tax write-off is not as valuable as it looks
When you write off a bad debt, you can generally claim it as a deduction against your taxable income. At a company tax rate of 30%, writing off a $10,000 debt generates a $3,000 tax benefit. That sounds helpful — but you are still $7,000 worse off than if the debt had been paid. The tax write-off does not make you whole; it softens the loss.
The revenue replacement problem
The true cost of a bad debt is most clearly seen in revenue terms. If your business operates on a 40% gross margin and you write off $10,000 (minus the tax benefit, so effectively $7,000), you need to generate $17,500 in new revenue just to cover that single bad debt. For most businesses, generating $17,500 in new work is significantly harder than recovering $10,000 through a specialist.
When writing off makes sense
Writing off may be the right choice when the debtor is insolvent and a proof of debt in their administration is the only realistic avenue, when the cost of recovery genuinely exceeds the expected return after commission, or when the debt is so old that the limitation period has expired. In all other cases — especially accounts under 12 months old where the debtor is a trading entity — referral to a recovery specialist on a commission-only basis should be considered first. The downside is zero: no recovery, no fee.
This calculator provides indicative estimates for illustrative purposes only. It does not constitute financial, legal or tax advice. Tax treatment of bad debts depends on your specific circumstances, accounting method and jurisdiction. Recovery rates are averages and are not a guarantee of outcome. Commission rates shown are illustrative — Merion's actual rate is agreed in writing before any work begins.