When does an overdue invoice become bad debt? Recovery odds by days overdue

You are looking at the aged receivables report (unpaid invoices grouped by age) and one invoice has sat in the 90+ days column for two months. The customer has gone quiet. You need to decide whether to keep chasing, hand it to a collector, or write it off and move on.

In the video: How likely is an overdue invoice to stay unpaid? (0:36), do a customer's other overdue invoices predict the next one? (1:21), which warning sign doubles the chance? (2:20), will a 90-day overdue invoice ever be paid? (3:11), what to do (3:51).

Here is what the recovery odds look like at each stage, from invoice data across over 1,000 Paidnice customers, and the point at which an overdue invoice should be treated as bad debt. Here, customers are the businesses and people who owe the invoices. Paidnice customers are the businesses that use Paidnice.

How likely is an overdue invoice to stay unpaid?

In Paidnice’s analysis of invoice data from over 1,000 customers, 1 in 5 invoices that were 7 days overdue were still unpaid 180 days after the due date. At 30 days overdue it was 2 in 5, and at 90 days 3 in 4.

A 60-day invoice is often treated as a nuisance and a 120-day invoice as a lost cause. The data puts the decision between those two, at about 90 days overdue. The wider picture is in our credit control statistics.

Will an invoice 90 days overdue ever be paid?

An invoice still unpaid 90 days after its due date is paid within a year 4 times in 10, in our analysis of invoice data from over 1,000 Paidnice customers. About 6 in 10 are not paid within a year. 90 days is the point to review the invoice and decide the next step: escalation, a payment plan or write-off.

The 4 in 10 paid-within-a-year figure and the 3 in 4 unpaid-at-180-days figure come from separate sets of invoices and are consistent with each other. At 180 days after the due date, 3 in 4 of the invoices that were 90 days overdue are still unpaid. Over a full year, the paid share rises to 4 in 10.

Payments keep arriving after 90 days overdue, slowly, and more than half are not paid within a year. New Zealand is the exception: more than half of its invoices still unpaid at 90 days are paid within a year. “Still unpaid” includes invoices a business stopped chasing without voiding, so part of the not-paid share is businesses giving up.

Is the bad debt pattern the same in every country?

Mostly yes: the recovery odds by days overdue hold within about 2 invoices in every 100 across the UK, Australia and the US, in Paidnice data. A UK invoice 30 days overdue faces about the same 2 in 5 chance of staying unpaid as an Australian or US one.

New Zealand recovers more of its long-overdue invoices, as the section above shows. What differs most by country is how many invoices reach the overdue stages at all, which we compare in payment times by country.

How many invoices are unpaid after 75 days in each country?

75 days after the due date, 5.6% of invoices with credit terms are unpaid in New Zealand and 13.9% in Canada, in Paidnice data. The full country comparison is in payment times by country.

How many follow-ups does it take to get an overdue invoice paid?

Once an overdue invoice is being chased, it takes 2.6 follow-ups after the due date on average to get paid, in Paidnice data. 8 in 10 chased invoices are paid by the fourth follow-up. 1 in 10 is not paid within 180 days.

A follow-up is any reminder, SMS, escalation, late fee email or statement sent after the due date. 1 in 10 chased invoices is not paid within 180 days, so a chasing sequence needs a stated end and a next step. That 1 in 10 covers chased invoices only. The 6 in 10 above covers every invoice still unpaid 90 days after the due date, so the two figures describe different groups.

How each follow-up performs is in how many payment reminders it takes to get paid.

Which signs point to bad debt early?

A bounced reminder is followed by an invoice still unpaid at 75 days about twice as often, 13 in 100 against 6 in 100, in our analysis of invoice data from over 1,000 Paidnice customers. A bounced reminder is a warning you can fix the same day: correct the contact.

The second sign is how many overdue invoices the customer already has with you. A customer with 1 overdue invoice is about 3 times as likely to leave the next invoice unpaid, 14 in 100 against 5 in 100. With 4 or more overdue invoices it is about 5 times as likely, at 26 in 100.

The third sign is a habit. Among customers with 5 or more invoices, 3 in 10 are late on 8 invoices in 10 or more. Those customers account for 71 in 100 of the invoices still unpaid at 75 days.

We list all six warning signs, with what followed each, in late-paying customers: the warning signs. In Paidnice, the credit score on each customer reads these patterns from payment history, so a serial late payer shows up before the next invoice goes out.

When to review an overdue invoice for write-off, and how Paidnice flags it

Review an invoice for write-off at 90 days overdue: at that point 3 in 4 invoices are still unpaid 180 days after the due date, in Paidnice data. The 90-day review point is a rule of thumb built on the recovery curve above. It is not an accounting standard, and writing an invoice off in your books does not stop you collecting it later.

At 90 days you decide what to do with each invoice. Writing it off is one choice. The question at 90 days is which invoices are worth more effort and which should go to a collector or be written off.

A simple rule that follows from the numbers above:

1. Before 30 days overdue: automated reminders carry the load. 4 in 10 chased invoices are paid by the first follow-up.
2. 30 to 90 days overdue: a person takes over with a call, a payment plan, and a late fee as leverage. The fee is optional; apply it automatically and waive it on purpose for a good customer who slipped once.
3. At 90 days overdue: decide. Escalate to a letter before action and a collector, agree a payment plan, or review the invoice for write-off. See when to send an invoice to a debt collection agency.

Whether a written-off invoice is deductible depends on your tax rules; the entries and tax notes are in how to calculate bad debt.

In Paidnice, an escalation raises the 90-day decision for you. Set an escalation to fire at a day count and the invoice lands as a task for a named person, with a call, a legal letter or a stop on credit as the next step.

See the debt collection software page for the whole workflow, or book a demo and we will set it up with you. For the view across all your invoices, see how to reduce aged debt and how to collect on past due invoices.

How we measured when an overdue invoice becomes bad debt

We measured recovery odds on invoices from over 1,000 Paidnice customers, following each overdue invoice for 180 days or a year after its due date.

FAQ

How long can an invoice be outstanding before it is bad debt?

In Paidnice data, 3 in 4 invoices that reach 90 days overdue are still unpaid at 180 days, so 90 days is the practical point to review an invoice for escalation or write-off.

What are the rules for writing off bad debts?

Write off an invoice in your ledger when you have decided it will not be collected, and keep the record of what you did to collect it. The journal entries and the two methods for estimating bad debt are in how to calculate bad debt.

Are bad debt write-offs tax deductible?

Whether a written-off invoice is deductible, and when, depends on the tax rules where you file and on the steps you took to collect it. See the tax notes in how to calculate bad debt and check with your accountant.

Is a bad debt provision an asset?

No. A bad debt provision is a contra-asset: it reduces accounts receivable on the balance sheet, so the receivables show at the amount you expect to collect. How to calculate bad debt shows how to size it from your aged receivables.

Should I send a 90-day overdue invoice to collections or write it off?

An invoice still unpaid 90 days after its due date is paid within a year 4 times in 10 in Paidnice data. Send it to collections when the amount justifies the fee and the customer is still trading. Otherwise review it for write-off with your accountant. See when to send an invoice to a debt collection agency.

About the editorial team

Written byDenym BirdCo-founder & CEO of Paidnice

Denym started Paidnice in 2022 after customers paying late left his own business short on payroll. He has led it to $1 billion collected on time across more than 1 million invoices, and writes about credit control, late fees and getting paid on Xero and QuickBooks.

Reviewed byAshley SchroderCo-founder of Paidnice

Ashley is a co-founder and lead developer of Paidnice, and builds the Xero and QuickBooks connections that put reminders, late fees and payments on the ledger. Before Paidnice he co-founded A2X, ecommerce accounting software for Xero and QuickBooks.