Managing bad debts in a challenging economy: A proactive approach to year-end

Proactive credit management and risk awareness

Bad debt prevention is just as important as debt recovery. Businesses that actively monitor customer risk and maintain disciplined credit management processes are generally better positioned to protect cash flow and minimise year-end write-offs.

A few practical strategies can make a significant difference:

• Review and update credit policies regularly: Credit limits, payment terms and approval processes should reflect current economic conditions rather than historic trading patterns. Customers who were low-risk several years ago may now require closer monitoring.
• Conduct periodic credit assessments: Regular reviews of customer payment behaviour, external credit reports and trading history can help identify early warning signs before debts become unmanageable. 
• Act quickly on overdue accounts: The longer an invoice remains unpaid, the lower the likelihood of full recovery. Prompt follow-up procedures, consistent collection activity and clear escalation processes are essential. 
• Apply interest and enforce trading terms where appropriate: Many businesses include late payment interest clauses in their terms and conditions but rarely enforce them. Consistent application can encourage stronger payment discipline and reinforce the importance of agreed trading terms. 
• Diversify customer exposure: Overreliance on a small number of customers can significantly increase risk. Spreading exposure across industries, regions and customer groups can reduce the impact of a major default. 
• Maintain accurate documentation: Signed agreements, purchase orders, delivery confirmations and clear records of communication strengthen a business’s position if recovery action becomes necessary. 
• Consider trade credit insurance where appropriate:  This can help protect businesses from customer non-payment, supports cash flow, reduces bad debt risk, and can be especially valuable for exporters facing added trade and political risks.

Key questions ahead of 30 June

As 30 June approaches, it’s worth stepping back and asking:

• Are we doing enough to get paid faster, not just chasing overdue amounts?
• Have recovery avenues been genuinely assessed and documented?
• Are bad debts being managed proactively rather than reactively, particularly where counterparties are showing signs of financial stress?
• Have we considered whether credit insurance or improved credit controls could reduce future bad debt exposure?

Ahead of 30 June, it’s important to speak with your advisor about tax planning and to review debtors that are unlikely to be collected so they can be written off before EOFY. Your advisor can also help assess recovery options and align commercial outcomes with tax treatment, often making a meaningful difference at year-end. For more information on year-end planning, download our Year-End Planning Guide or speak with your usual Forvis Mazars advisor or one of our experts below.

Authors: Alaina Hatton & Angelique Battaglia

Published: 2/6/2026

Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.

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