How Bad Debts Really Happen (And Why They’re Rarely a Surprise)

Most bad debts don’t begin with a problem.

They begin with a perfectly normal order.

A new customer.
A reasonable job.
A good opportunity.

And at the time, nothing feels risky.

A new customer appears

Let’s take a typical example.

A new enquiry comes in from a business calling themselves “X Builders.”

They want to open an account on 30-day terms.

Sales are happy with the new customer. And at first glance, it looks like a good piece of business.

But when the credit control team tries to check them, they can’t immediately find the company.

After a bit more digging, the correct legal entity turns out to be XYZ Ltd.

A credit check shows they are a new business with:

  • Low credit score
  • Minimal assets
  • Limited trading history

At this point, there’s some hesitation.

But the opportunity looks good.

So the decision is made to proceed cautiously.

A false sense of security

The business starts small.

A few initial orders are taken.

Payments don’t arrive quickly — but they do arrive.

Eventually.

That’s often enough to build confidence.

“They’re a bit slow… but they pay.”

And just like that, the perceived risk begins to reduce.

The big order

Then comes the turning point.

A much larger order is placed — This time for £12,450.

This time, the credit control team raises concerns:

  • The exposure is now significant
  • The payment behaviour hasn’t been strong
  • The credit profile hasn’t improved

But sales see it differently:

  • It’s a good customer
  • The relationship is building
  • The order shouldn’t be turned away

This is where a critical mistake often happens.

Sales pressure overrides credit control.

The order is approved.

The first delay

The invoice is raised.

30 days pass.

No payment.

A call is made:

  • “It’s with accounts”
  • “We’ll get that sorted”
  • “Payment is due next week”

Nothing unusual.

Nothing alarming.

But this is the moment where the direction changes.

Most bad debts don’t start at 90 days.
They start at day 31.

The drift begins

Now the pattern starts:

  • They start by asking for copy delivery notes
  • They question who signed what
  • They query parts of the order
  • They say they can’t afford 30 day terms but need 60 as their customer pays on 60 days
  • Promises are made but not kept
  • Calls are harder to get returned
  • Emails take longer to be answered

Internally:

  • Credit control continues chasing
  • Sales remain optimistic
  • The account is not escalated

And crucially…

Trading often continues.

Exposure builds quietly

More invoices are raised.

The outstanding balance grows.

What started as a £12,450 exposure is now significantly more.

This is where the real risk lies.

The danger isn’t the first unpaid invoice — it’s everything that follows it.

The warning signs were there

Looking back, the signs were all present:

  • Slow payment from the beginning
  • Weak credit profile
  • Difficulty identifying the correct legal entity
  • Increasing reliance on promises

But at the time:

  • Each issue felt manageable
  • Each delay felt temporary

The breaking point

Then the situation changes quickly.

Calls stop being answered.

Emails go quiet.

And eventually, a notice appears:

XYZ Ltd has entered liquidation.

At that moment, the outstanding balance becomes a potential write-off.

The reality

It feels sudden.

It feels unexpected.

But in reality, the outcome was building over time.

Through:

  • Small compromises
  • Delayed decisions
  • Missed warning signs

The key lesson

Bad debts are rarely a single event.

They are the result of a sequence:

  • A risk that was accepted
  • A warning sign that was overlooked
  • A delay that wasn’t challenged
  • An exposure that was allowed to grow

Where this goes wrong

Every stage of this journey reflects the common mistakes businesses make when granting credit.

You can see the full breakdown here:

Credit Control Mistakes: The 21 Don’ts of Granting Credit

How CPA can help

The earlier a problem is identified, the easier it is to resolve.

Left too long, even the best recovery process becomes more difficult.

At CPA, we help businesses:

  • Identify risk earlier
  • Monitor customers continuously
  • Act before overdue invoices become bad debts

Protecting your cashflow starts long before an invoice becomes overdue.