Write-Off / Write-Down

A write-off (also called a write-down) is the cancellation of a billable amount after the work has been delivered, reducing collected revenue without reducing the delivery cost already incurred.

The hours have been logged, the cost has been incurred, and the work is complete. Removing the corresponding revenue from the invoice reduces gross margin point for point and is a primary driver of realization rate decline and margin leakage.

Write-off vs. discount

A discount is a price reduction agreed before the work begins. A write-off is a reduction applied after delivery, when the cost is already sunk. The practical difference is significant.

	Discount	Write-off
When applied	Before delivery	After delivery
Visibility	Appears in the proposal	Often invisible at billing
Cost impact	Cost not yet incurred	Cost already sunk
Governance risk	High but manageable	High and often unmanaged

Discounts affect margin at the pricing stage. Write-offs affect margin at the billing stage, where costs are locked in and cannot be recovered.

Why write-offs happen

Write-offs typically arise from one of four causes:

• A client disputes hours or quality, and the engagement lead reduces the invoice to resolve the issue without a formal dispute process.
• Scope creep was absorbed during delivery, and the overage is written off rather than captured in a change order.
• The engagement overran its estimate, and the excess is written off to protect the client relationship.
• Hours were logged against the wrong project or in error, and the correction occurs at invoicing.

The first two causes are commercial decisions. The third and fourth are operational failures. Distinguishing between them is necessary to address each type appropriately.

Impact on realization rate

Every dollar written off reduces the numerator of the realization rate formula:

Realization rate = Collected revenue / (Billable hours x Standard rate)

A firm that writes off $200,000 in a quarter on $2,000,000 of potential billings loses 10 realization points. The cumulative effect of write-offs also widens the realization gap between what a firm bills and what it collects, which compounds across engagements and clients.

Write-off governance

Sound governance limits the volume and concealment of write-offs:

1. Set a threshold above which any write-off requires a second approval, such as a partner sign-off plus finance director review for amounts above a defined value.
2. Report write-offs monthly by partner, client, and practice area in leadership reviews, so patterns are visible before they compound.
3. Categorise write-offs as corrective (administrative error) or commercial (relationship management) so each type can be tracked and addressed separately.
4. Treat repeated write-offs on a single client as a pricing or scoping problem, not a billing problem. The root cause is usually in how the engagement was estimated or sold, not how it was invoiced.