What to Know About Collections and Writing Off Client Balances
For behavioral health providers, knowing when—and how—to stop chasing unpaid invoices matters.
Dealing with unpaid client balances is an unfortunate but common part of running a behavioral health practice. Whether it’s a client who ghosted after a few sessions or a claim that hit a dead end with insurance, every provider eventually faces the decision: Should I keep trying to collect this? Or is it time to write it off?
In Episode 3 of The Right Tack podcast, we sat down with Devon Liljenquist, CPA, who specializes in helping private practice owners understand the financial side of their business. Devon offered clarity on what it means to write off a balance—and how that decision affects your taxes and your books.
🎧 Listen to the full episode here.
More Than Write-Offs: Business Type Basics from Devon Liljenquist, CPA
This blog post focuses on Devon’s insight into collections and writing off client balances—but that’s not all he covered in his episode of The Right Tack. He also shared advice on choosing the right business structure (like LLC vs. S-Corp) for behavioral health practice owners, and how those decisions impact your taxes and long-term financial health.
“If you’re just starting out and you’re a sole practitioner, an LLC taxed as a sole proprietorship is a really common place to begin,” Devon said. “But once your income starts growing, switching to an S-Corp can offer significant tax savings—especially when it comes to self-employment taxes.”
Whether you're deciding how to handle aging balances or evaluating your entity type, it’s worth giving the full episode a listen.
🎧 Listen to the full episode of The Right Tack here
First: What Does It Mean to Write Off a Balance?
Writing something off doesn’t mean you get a tax deduction for it. It simply means you're acknowledging that you're no longer expecting to be paid, and you're removing that amount from your active receivables.
"You write it off on your end in terms of just saying, 'I’m done trying to collect this,' but it doesn’t show up on your tax return—because you never received it anyway," Devon explained.
In other words, for most behavioral health practices operating on a cash basis (which is the accounting method we recommend for most small providers), unpaid client balances were never counted as income to begin with. That means when you write off an unpaid invoice, it doesn't hurt your taxes—it simply cleans up your records.
"For a cash basis taxpayer, they don't get to deduct those unpaid receivables—because they never received them," Devon said. “So if you were allowed to deduct those, you’d in essence be double-dipping.”
When Should You Write It Off?
There’s no magic formula for the exact moment to give up on collecting a balance, but most practices follow a general rule of thumb: after 90 to 120 days, if there’s been no payment and no response to outreach, it’s time to consider writing it off.
That doesn’t mean you can’t try again later, but from a bookkeeping and operational standpoint, it’s helpful to keep your accounts receivable clean and realistic.
“It keeps your books accurate and reflects your true revenue,” Devon said. “A common mistake I see is practices leaving old balances open, which inflates their financials and can confuse practice owners about what they’re really earning.”
What’s the Tax Impact?
If your practice is on the cash basis of accounting, which applies to most small therapy practices, there is no tax benefit to writing off client debt. That’s because you’re only taxed on money you actually collect—not what you invoice.
“You can’t deduct something that was never yours to start with,” Devon clarified on the podcast.
However, if you’re using accrual accounting (which is rare in the behavioral health space), then yes—you may be able to deduct those balances, since you reported the income when the invoice was sent, not when it was paid.
But again, for the vast majority of providers: writing off a balance is just a cleanup step—not a tax strategy.
Practical Tips for Managing Collections
Here are a few best practices to stay ahead of unpaid balances:
Set clear payment expectations upfront during intake.
Follow up consistently on overdue balances.
Consider a late payment policy or small service fee.
Use automated tools or billing software to flag aging balances.
Partner with a billing service like BreezyBilling to offload the burden.
And when all else fails, don’t let bad debt linger:
“You write it off so you’re not chasing it anymore. Just get it off your books and move on,” Devon advises.
The Bottom Line: Stop Chasing, Start Focusing
Chasing small unpaid balances for months or years doesn’t just waste time—it distorts your financial picture and distracts you from more productive work. Writing off balances when appropriate helps you focus on clients who are paying, services that are working, and growth that’s real.
If you’re unsure how your practice should be tracking revenue, handling collections, or closing your books at the end of each year, consider working with a trusted accountant or billing partner.
And if you haven’t already, check out our full conversation with Devon Liljenquist on The Right Tack podcast. We talk taxes, entity types, common small business pitfalls, and more.
🎧 Listen to Episode 3: Smart Tax Tips for Private Practice Owners (with Devon Liljenquist, CPA)
Want help managing your collections and improving cash flow?
💨 Let BreezyBilling take it from here.
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