Plain definition
A write-off removes a receivable or other balance when there is no reasonable expectation of recovery under the company’s policy and the applicable requirements. For a receivable that already has an allowance, the write-off normally uses that allowance rather than creating a new expense at the moment the account is removed. A write-off is a conclusion about a specific balance, not a decision to stop collection activity in every case.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
A customer owes and has entered liquidation. The receivable already has a expected-credit-loss allowance. After evidence from the liquidator and approval, finance writes off the gross receivable against the allowance, so net receivables and current-period expense do not change at that point. If is later recovered, it is recorded according to policy with clear evidence.
Tax treatment, legal rights, customer circumstances, and the prior allowance determine the entries. Writing off a debt cannot be used to erase a dispute without evidence or approval.
Why it matters
Delaying valid write-offs overstates gross receivables and makes collections performance look better than reality. Writing off balances too early can abandon recoverable cash or hide poor credit-control decisions.
Practical consequence
Set objective write-off triggers, such as documented insolvency, exhausted collection steps, or approved settlement, with exceptions requiring senior review. Retain customer correspondence, legal evidence, allowance link, approver, and recovery follow-up. Analyse write-offs by customer, sales channel, and cause to improve credit terms rather than treating them as a bookkeeping clean-up.