What is a Charge-Off? B2B Accounts Receivable Definition

Definition

Charge-Off Explained

A charge-off is an accounting action in which a company declares a debt uncollectable and removes it from its accounts receivable balance sheet. This typically happens after a defined period of non-payment — commonly 120 to 180 days past due — when the likelihood of voluntary collection has dropped significantly.

The most important thing to understand about charge-offs: charging off a debt does not eliminate the debt. The legal obligation to pay still exists. The creditor can continue collection efforts, sell the debt to a third-party collection agency, or pursue legal judgment — even years after the charge-off date.

For tax purposes, charged-off business debts that were previously included in gross income may be deducted as a bad debt loss in the year they are deemed wholly or partially worthless (IRC §166). This partial offset makes timely charge-off documentation important for tax planning.

Key Points

What You Need to Know About Charge-Offs

A charge-off is an accounting action, not a legal forgiveness. The debt still exists; only its classification changes on your books.
The IRS requires reasonable proof that the debt is worthless before you can deduct it. Document your collection attempts before charging off.
Charged-off debt can be sold. Many companies sell portfolios of charged-off receivables to collection agencies for 1-20 cents on the dollar depending on age and documentation quality.
Statute of limitations still applies. Even on charged-off debt, your window to sue for collection is governed by state law — typically 4-6 years for written B2B contracts.
Recovery is still possible 12-24+ months later. Companies that maintain contact efforts on charged-off accounts consistently recover 10-30% of the written-off portfolio.

Charge-Off vs. Write-Off

Charge-Off vs. Write-Off: What's the Difference?

Charge-Off

Specific term used in banking, lending, and formal credit contexts. Refers to the process of reclassifying a debt as a loss after a defined aging period. Common in consumer and commercial lending. The account is "charged off" after 120-180 days. Collection efforts typically continue afterward via third-party agencies.

Write-Off

Broader accounting term used across industries. When an asset is written off, it is removed from the balance sheet. In B2B AR, "writing off" an invoice means removing it from active AR and recording a bad debt expense. Used interchangeably with charge-off in many B2B contexts, though technically distinct in banking.

Practical rule: In B2B accounts receivable, "charge-off" and "write-off" are functionally the same. In banking and formal lending, "charge-off" has a specific regulatory meaning tied to defined aging thresholds. When in doubt, ask your accountant which term applies to your specific situation.

Example

Charge-Off in Practice: B2B Example

Scenario: Logistics Company, $120K Outstanding

Situation: A freight broker delivered $120,000 of freight services over 60 days. The client — a mid-size retailer — stopped responding after 90 days past due. Internal emails, calls, and a formal notice all went unanswered.

At 150 days past due: Finance writes off the $120,000 as a charge-off. Journal entry: Debit Bad Debt Expense $120,000 / Credit AR $120,000.

IRS treatment: The $120,000 is deductible in the current tax year, partially offsetting the loss.

Post-charge-off: The account is referred to AgentCollect. An AI agent locates the new AP contact (skip tracing), makes contact, and negotiates a settlement for $78,000 — 65% recovery on a charged-off account. The recovery is recorded as income in the year received.

AgentCollect

Recovering Charged-Off Accounts

Most "Charged-Off" Accounts Are Still Collectable

AgentCollect has recovered B2B accounts charged off 2+ years prior. Many debtors who went silent during internal collection efforts respond to a fresh approach — a professional phone contact with the right person, at the right time, with a reasonable settlement offer.

AI agents automatically perform skip tracing to find current contact information (decision-makers change, companies restructure), make outbound calls, and negotiate settlements. For aged charged-off portfolios, even recovering 20-30 cents on the dollar is pure found money — with zero upfront cost on a success-only fee structure.

Related Terms

Related AR Glossary Terms

FAQ

Charge-Off FAQ

Does a charge-off mean the debt is forgiven?

No. A charge-off is purely an accounting action — the company removes the debt from its active AR books because it no longer expects to collect it. The debt still legally exists, and the creditor can continue collection efforts, sell the debt to a collection agency, or pursue legal action.

What is the difference between a charge-off and a write-off?

In practice, the terms are often used interchangeably in B2B contexts. Technically, a write-off removes the asset from the balance sheet entirely (direct write-off method), while a charge-off specifically refers to the process of moving debt to a charged-off status after a defined period — common in banking and formal lending contexts.

Can charged-off debt still be collected?

Yes. Charged-off debt is frequently sold to collection agencies or referred to attorneys for continued collection. AgentCollect has successfully recovered B2B accounts that were charged off 12-24 months prior. The key is finding the right contact and using a professional approach — many debtors are simply waiting to be asked the right way.

Have a portfolio of charged-off accounts?

AgentCollect recovers aged and written-off B2B debt. Success-only fees — you pay nothing unless we collect.

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