Last updated November 6, 2026
Rules and figures from other sources checked on November 6, 2026. They change, so confirm with the source before you rely on them.
General information, not tax or legal advice. The rules depend on your country and your situation, so check anything with a tax or legal consequence with your accountant.
A write-down reduces the value of work or a debt but leaves the rest to collect, for example billing 8 of 10 hours worked. A write-off removes the whole amount because you'll never collect it, for example an invoice to a customer that has gone under. Firms use both words loosely, so define yours.
What is the difference between a write-down and a write-off?
The difference between a write-down and a write-off is whether anything is left. A write-down lowers an amount, and a write-off takes it to zero. The word usually tells you less than the timing does: before the invoice you're deciding what to charge, and after it you're dealing with what you're owed.
In practice, firms that bill by the hour tend to say "write-down" for time they chose not to bill and "write-off" for a debt they've given up on. Accountants may use "write-off" for removing a part of a receivable too. Agree one set of meanings inside the firm and with your accountant.
When does each one happen in the billing cycle?
Each one happens at a different point in the billing cycle, and the point decides the paperwork.
| When | Situation | Usual name | Document | Effect on your figures |
|---|---|---|---|---|
| Before the invoice | 10 hours worked, 8 worth charging | Write-down of time | None. The invoice shows what you bill | Lower revenue than the hours were worth |
| Before the invoice | A whole task can't be charged | Write-off of time | None. Mark the time non-billable | Same, and the time stays on your records |
| After the invoice | Price later reduced by agreement | Write-down of the invoice | Credit note | Revenue and output VAT fall |
| After the invoice | Customer can't or won't pay, and you've given up | Write-off of the debt | An internal entry, and a claim for VAT relief if you qualify | Revenue stands, a bad-debt cost appears |
The last two rows get confused most. A credit note says the charge has changed. A bad debt says the charge was right and the money isn't coming. If you also carry unbilled work in your accounts, a write-down of time reduces it, and that shows on a WIP report.
A worked example: from hours to bad debt
Here's an invented example with all three in one job. A consultancy logs 40 hours at €100, charges 20% VAT, and things go gradually wrong.
| Stage | Net | VAT | Total | What you do |
|---|---|---|---|---|
| Time recorded: 40 hours | €4,000.00 | Nothing yet | ||
| Write-down before billing: 5 hours | −€500.00 | Leave them off the invoice, note the reason | ||
| Invoice: 35 hours | €3,500.00 | €700.00 | €4,200.00 | Issue it |
| Agreed reduction after a dispute | −€300.00 | −€60.00 | −€360.00 | Issue a credit note |
| Now owed | €3,200.00 | €640.00 | €3,840.00 | |
| Part payment received | −€1,666.67 | −€333.33 | −€2,000.00 | Record the payment |
| Unpaid, customer insolvent | €1,533.33 | €306.67 | €1,840.00 | Write off, and look at VAT relief |
Against the €4,000 of time at standard rates, the firm billed 87.5% at first and 80% after the credit note, and collected 41.7% net of VAT. Those are three separate problems with three separate fixes, and lumping them together as "discounts" teaches you nothing.
If you wanted the client to see a goodwill reduction, you can say so on the line:
Workshop preparation: 10 hours at €100.00, reduced to 8 hours as agreed for a first engagement.
Hours you've written down because of your own rework shouldn't appear on the invoice at all.
Does a write-off reduce the VAT you owe?
A write-off can reduce the VAT you owe, but only under your own country's rules. Article 90 of the EU VAT Directive says the taxable amount is reduced in the case of total or partial non-payment, under conditions each member state sets, and it lets member states depart from that for non-payment. So the conditions vary a great deal. Here are two examples we've checked:
| Where | Source | Main conditions |
|---|---|---|
| UK | HMRC VAT Notice 700/18 | VAT already accounted for and paid. Debt written off in your VAT accounts and moved to a separate bad debt account. Not sold or factored. Unpaid for 6 months after the later of the due date and the supply date. Claimed within 4 years and 6 months of that same date |
| Estonia | Estonian Tax and Customs Board, VAT Act § 29¹ | Compliant invoice, with the VAT declared. Claim not transferred, and the buyer not a related party. More than 12 months and no more than 3 years after the due date. Written off after real efforts to collect, or because collecting would cost more than the claim. Buyer told in writing. Large claims need a court decision |
Three points recur. Relief covers only the VAT in the part still unpaid, which is the €306.67 in the example. Relief is generally repaid if the money later turns up, and HMRC and the Estonian board both say so. And the customer may have to reverse the VAT they reclaimed.
A credit note isn't the way in. HMRC says plainly that you may not issue one simply because a customer hasn't paid. In any other country, ask your accountant before you claim, and ask about income tax at the same time, because whether a bad debt is deductible is a separate question.
How should a firm decide and record these?
A firm should decide write-downs and write-offs with a named approver and a reason recorded every time, because the reasons are the useful part. A short list is enough:
- Scope grew without being agreed
- Our error or rework
- Goodwill
- Client dispute
- Bad debt
Have the person responsible for the client approve write-downs, and a second person approve anything above a set amount. After a few months, if "Our error" keeps coming up the fix is in delivery, and if "Scope grew" keeps coming up it's in the quote. Before you write off a debt, make sure you've actually finished chasing: a reminder sequence and an aged receivables report will tell you where it stands.
Recording write-downs and unpaid invoices in ERPFlow
ERPFlow has no write-off function, bad-debt status or VAT bad-debt calculation, and no credit note document. Here's what you can do.
- Before issuing: a draft invoice can be edited freely. Reduce the quantity, or use the line's discount %, which prints on the PDF.
- After issuing: the invoice is final. Mark as void and Duplicate cancels it and reissues under a new number, which handles a whole-invoice correction. It doesn't cover a partial credit on its own document, so that goes through your accounting system.
- A debt you've given up on: the invoice stays Overdue or Partially paid, and keeps counting in Outstanding and Overdue on the dashboard. Be careful about voiding it just to clear the list. Voiding cancels the invoice and takes it out of the customer's revenue, and any email of a voided invoice tells the customer no payment is due. A bad debt was a real sale, so ask your accountant first.
- The customer: Blacklist on a customer record flags them with your reason. It blocks nothing, and it warns anyone about to send them a quote or invoice.
- Your accountant: record the write-off and any VAT relief in your accounting system. Tax reporting in ERPFlow reads from the invoices themselves, so tell your accountant about anything handled outside it. You can export your invoices as CSV for them.