What is compensating revenue?
When a receivable becomes uncollectable, meaning it is highly unlikely the customer will ever pay, the company loses not only the margin on the sale but also the cost of the goods or services already delivered. To get back to the same net result, it must generate additional revenue, known as compensating revenue.
This effort is almost always underestimated: with a net margin of a few percent, every euro lost must be offset by tens of euros of additional sales.
How to calculate it
Compensating revenue = (Unpaid amount excl. VAT + collection costs) ÷ Net margin rate
A company with a 4% net margin suffers €250,000 of bad debt and spends €15,000 on collection. To offset this €265,000 loss, it must generate 265,000 ÷ 0.04 = €6.6M of additional revenue, almost 27 times the unpaid amount.
What bad debt really costs
- The outright loss of the receivable, and therefore of the cost already incurred;
- Collection costs: team time, reminders, formal notices, bailiffs, lawyers, proceedings;
- The cost of cash: for months, the receivable tied up cash that had to be financed;
- The opportunity cost: sales time spent making up for losses rather than growing the business.
Late payment penalties in France
Between businesses in France, any late payment automatically triggers late payment interest and a fixed €40 collection fee per invoice. Unless your terms state a rate, the applicable rate is the ECB rate plus 10 points, i.e. 12.40% in the second half of 2026; a contractual rate cannot be lower than three times the legal interest rate (8.25% in the second half of 2026). These amounts deter late payment but do not offset an uncollectable receivable.
How to prevent bad debt
The best way to reduce compensating revenue is to avoid the default in the first place:
- Assess the risk of every customer at account opening and set credit limits;
- Monitor changes in risk and payment behaviour, with alerts;
- Secure large exposures with credit insurance, while meeting your policy obligations;
- Send reminders early and in a structured way, and resolve disputes quickly;
- Block orders from risky customers, together with your sales teams.
Credit Management software such as Hoopiz brings all these levers together in a single platform.
Frequently asked questions
What is the difference between an unpaid invoice, a doubtful debt and a bad debt?
An unpaid invoice is one not settled by its due date. It becomes doubtful when there is a serious risk it will not be recovered (long delay, dispute, customer in difficulty), and a bad debt when it is highly unlikely to be paid, for example after insolvency proceedings have closed.
Why use net margin rather than gross margin?
Net margin measures what the company actually keeps from each euro sold once all costs are paid. It therefore determines the sales volume needed to rebuild a lost result. Using gross margin would underestimate the effort.
How much late payment interest can I claim in France?
Between businesses, interest is calculated on the amount due, at the rate stated in your terms or, failing that, at the ECB rate plus 10 points (12.40% in the second half of 2026), pro rata to the days of delay. A fixed €40 fee per late invoice is added.
Is credit insurance enough to protect yourself?
It compensates part of the insured receivables, provided you meet the policy obligations (notifications, deadlines, limits). It does not cover uninsured customers or exposures above the insured limit: it must go hand in hand with active risk and collection management.
How can bad debt be reduced for good?
By combining risk assessment at account opening, continuous monitoring, well-managed credit insurance and structured dunning. Among our mid-sized and group customers, we see on average −30% bad debt after 12 months of using Hoopiz (order of magnitude, depending on the starting point).