What makes an invoice become bad debt
An invoice becomes bad debt when you've given up collecting it. That usually happens after 90-180 days of failed follow-up — or more often, no follow-up at all. The transition from 'overdue invoice' to 'bad debt write-off' is rarely the customer's fault alone. It's usually a combination of customer procrastination and business systems that let invoices age without escalation.
The most common path to bad debt: invoice sent, customer doesn't respond, business sends one or two polite emails, gets no response, and eventually gives up. This path can be interrupted at any point with a more aggressive (but professional) follow-up system.
The three interventions that prevent most bad debt
Prevention of bad debt comes down to three interventions at different stages. Early (0-14 days): automated SMS and email reminders with payment links catch the 'I forgot' customers before they become 'I'm avoiding' customers. Middle (14-45 days): AI voice follow-up creates urgency and makes payment easy from the customer's perspective. Late (45-90 days): formal written demand with a clear deadline and escalation threat — without an explicit consequence, many customers will continue to delay indefinitely.
Most bad debt occurs when businesses stop after the early stage and don't escalate. The voice call and formal demand add the urgency that converts late payers.
Credit checks and deposits for new customers
For service businesses taking on new commercial customers or particularly large residential jobs, a credit check is worth the $10-$20 investment. Business credit scores (Dun & Bradstreet, Equifax Business) predict payment behavior with reasonable accuracy. A customer with a history of slow payment or collections judgments is a risk you can price or decline.
For residential customers, the deposit model serves a similar function. Requiring 30-50% upfront on jobs over $2,000 eliminates most bad debt scenarios. A customer who pays a deposit has demonstrated both the ability and willingness to pay — your risk is cut in half.
Writing off intelligently: what to document before you give up
When you do decide to write off an invoice, document everything: all contact attempts with dates and methods, any responses or commitments from the customer, the work completed and any relevant photos or documentation. This documentation serves three purposes: it supports the bad debt tax deduction, it's admissible in small claims court if you later decide to pursue it, and it protects you if the customer disputes the work.
Surety's dashboard maintains a full log of all contact attempts, responses, and call outcomes automatically. If you ever need to demonstrate 'good faith collection effort' for a legal or tax purpose, it's all there.