There is a quote attributed to Einstein — whether he actually said it is debated, but the truth of it is not — that defines insanity as doing the same thing over and over and expecting a different result.
It is quoted endlessly in business contexts. In leadership development. In change management. In strategy sessions where the facilitator wants to make the point that persistence without adaptation is not a virtue.
And then everyone leaves the session, goes back to their business, and carries on doing exactly the same thing they did last year.
Nowhere is this more visible — or more costly — than in how businesses manage credit.
Write off the debt. Move on. Win new business. Generate new revenue. Watch some of it turn into bad debt. Write it off. Move on. Win new business.
Year after year. With the same processes. The same culture. The same absence of the discipline that would break the cycle. And every year, the quiet, unexamined conviction that somehow this time will be different.
It will not be different. It never is. Not until something actually changes.
The Write-Off That Nobody Questions
Every business that extends credit has a write-off process. The debt reaches a point — a balance, an age, a combination of both — at which the finance function formally accepts that recovery is unlikely and removes it from the receivables ledger. The journal entry is made. The loss is recognised. The account is closed.
And then — this is the part that defines the cycle — the business moves on without asking the question that the write-off is screaming to be asked.
Why did this happen?
Not in the specific, immediate sense. The customer didn’t pay — that much is clear. But in the structural sense. What decision, made at what point, by whom, under what pressure, created this account? What process should have flagged the risk before the credit was extended? What early warning was missed, ignored, or overridden? What would need to change for this not to happen again?
In most businesses, that question is never asked. The write-off is a financial event, processed by finance, noted in the management accounts, and absorbed into the annual bad debt provision that everyone has learned to expect.
It is not treated as information. It is not examined for what it reveals. It is not used as the basis for any structural change.
And so, the conditions that created it remain entirely intact. Ready to create the next one.
The Provision That Became a Budget
Here is one of the most revealing signs that a business has accepted the cycle rather than broken it.
The bad debt provision in the annual budget.
Every finance director knows the number. The percentage of revenue that will, based on historical experience, need to be written off. The figure that is built into the financial plan not as a risk to be managed but as a cost to be expected.
When bad debt has its own budget line — when it is planned for rather than prevented — the organisation has made a decision. It has decided that the cycle is permanent. That the write-offs are an unavoidable cost of doing business. That the question of why they keep happening at the same rate is not worth asking, or has been asked and found unanswerable.
Both conclusions are wrong.
The bad debt provision is not evidence that write-offs are inevitable. It is evidence that the processes producing them have never been seriously examined. It is a financial formalisation of a cultural failure — the acceptance of a problem that was always solvable, dressed up as prudent financial planning.
The businesses that have genuinely addressed their credit management culture do not budget for bad debt at the same rate year after year. Because the rate changes when the culture changes. The write-offs that were expected become unexpected — because the conditions that produced them no longer exist.
The Hamster Wheel of Bad Revenue
There is a particular version of this cycle that deserves its own description because it is so common and so destructive.
The business writes off bad debt. The write-off reduces the cash available for operations and growth. To compensate, the business needs to win more revenue. The sales team goes out and wins more revenue — applying the same credit standards, or lack of them, that produced the previous bad debt. Some proportion of the new revenue becomes bad debt. The cycle repeats.
The business is not standing still. It is working extremely hard. The sales team is active. The revenue line is moving. There is genuine effort and genuine commercial activity.
But a portion of that effort — the portion that produces revenue that will never be collected — is not contributing to the business. It is consuming resources, management time, and capacity while generating nothing of lasting value.
The hamster wheel turns faster and faster. The distance travelled remains the same.
This is not a theoretical scenario. It is the operational reality of businesses across every sector — businesses that are busy, that are growing on paper, that are producing revenue figures that look impressive and cash positions that do not reflect them.
The courier business we worked with for fourteen years is the most vivid example. Millions in bad debt, recovered annually, year after year. The volume never changed because the culture never changed. The wheel turned. The distance remained the same. Fourteen years.
What Staying in the Cycle Actually Costs
Most businesses have never properly calculated what the cycle costs them. Not the annual write-off figure — that is visible. The cumulative, compounding cost of running a business without the credit management discipline that would break it.
Start with the face value of the bad debts written off over three years. Add the internal cost of chasing those debts before they were written off — staff time, management attention, the distraction from more productive work. Add the collection fees paid to recover what could be recovered. Add the working capital cost of carrying overdue receivables — the interest on borrowing used to bridge the gap, or the investment foregone because the cash was not available. Add the cost of the new business that had to be won just to replace the revenue that was written off.
Now ask: what would that figure — over three years, over five years, over fourteen — have done for the business if it had been retained?
The investment. The people. The product development. The market expansion. The financial resilience in difficult periods.
The business that breaks the cycle does not just stop losing money. It starts compounding the money it keeps. The difference, over time, is the difference between a business that survives and one that thrives.
The Moment of Honest Reckoning
Every business that is caught in this cycle reaches, at some point, a moment of honest reckoning.
Sometimes it is precipitated by a crisis — a bad debt large enough to threaten the business, a cashflow position that can no longer be managed by the usual mechanisms, a write-off that finally breaks through the normalisation and forces the question that should have been asked years earlier.
Sometimes it comes more quietly — in a late-night review of the numbers, when the pattern becomes impossible to ignore. When the realisation arrives, clearly and uncomfortably, that the business has been working harder and harder and getting nowhere because a significant portion of what it earns is disappearing into an avoidable hole.
Either way, the moment arrives. And at that moment, the business faces a choice.
It can absorb the shock, make some surface adjustments, and return to the cycle. New procedures that look like change but leave the underlying culture intact. A tightened credit policy that is overridden under the same commercial pressures as the previous one. A promise to be more careful that evaporates when the next sales opportunity arrives.
Or it can make a genuine decision. That this is the last time. That the cycle ends here. That the processes, the culture, the incentives, and the disciplines that produced the problem are going to be systematically addressed — not patched, not worked around, not budgeted for.
That decision, genuinely made and genuinely followed through, changes the financial trajectory of a business more reliably than almost any other single intervention available.
What Breaking the Cycle Requires
Breaking the cycle is not complicated. But it requires more than intention.
It requires an honest diagnosis of where the bad debt is coming from. Not just which accounts — but which decisions, which processes, which cultural norms produced those accounts. The write-off history of a business, examined carefully, is one of the most revealing documents in its possession. It tells the story of every credit decision that went wrong, every early warning that was missed, every commercial pressure that overrode the credit discipline that should have prevailed.
It requires a credit policy that is genuinely applied — not written and then ignored, not applied to some accounts and not others, not overridden whenever a salesperson needs to close a deal. A policy that governs the business consistently and that has the authority and the cultural backing to hold.
It requires alignment between the commercial function and the credit function — not the permanent war between sales and finance that exists in so many businesses, but a shared understanding that quality revenue and collected revenue are the same objective, not competing ones.
It requires early intervention as a discipline — the habit of acting at thirty days rather than ninety, of having the conversation while it is still easy rather than deferring it until it is impossible.
And it requires leadership that treats credit performance as a metric that matters — that asks about days sales outstanding and bad debt as a percentage of revenue with the same regularity and the same seriousness that it asks about revenue growth and margin.
None of this is beyond any business. None of it requires a large budget or a specialist team. It requires a decision, made seriously, and followed through with the same determination that the business applies to everything else it wants to change.
The Question That Ends the Cycle
There is one question that, honestly asked and honestly answered, starts the process of breaking the cycle.
Are we doing the same things we have always done with credit management — and expecting the write-offs to somehow reduce?
If the answer is yes — if the process, the culture, the incentives, and the disciplines are the same as they were when the last round of write-offs occurred — then the outcome will be the same. It always is.
The definition of the problem is also the definition of the solution. Do something different. Something that addresses the root cause rather than managing the symptom. Something that changes the conditions that produce the write-offs, rather than processing their consequences with increasing efficiency.
The cycle is breakable. It has been broken, by businesses that were willing to look honestly at what they were doing and change it.
The only question is whether yours is next.......................................
If your business has been writing off debt at a consistent rate for years and the underlying process has never been formally examined, that examination is worth having. The conversation starts here.
