Setting up provision
There are several ways to deal with doubtful debtors. You can set up a provision in your accounts and correct amounts or you can take these doubtful debtors into account by default. When setting up a provision, you can limit the damage by deducting the receivable from your profit. In the case of an irrecoverable invoice, you may reclaim the VAT from the tax authorities. This is allowed from 12 months. However, a short file must be built up on each debtor.
Standard
Do you take bad debtors into account by default? In practice, about 3% of invoices go unpaid. You may deduct that from your invoices and keep it aside for possible bad debts. If it turns out to be more positive or more negative, you book it as profit or loss. You 'save', as it were, for unpaid invoices and anticipate the fact that you will lose income. Again: substantiate!
Substantiate well
The write-down of a non-full amount receivable is therefore allowed, as long as the valuation has been made in the entrepreneur's reasonable judgement, the circumstances as at the balance sheet date have been assessed and there is an individual assessment per debtor (in case of larger size, this may also be an experience figure). Making a combination between individual and collective assessment is also allowed. Note: there must always be a good justification!
Prevent
We said it before: prevention is better than cure. Understanding the quality of the customer portfolio is crucial. If there is a chance that a large customer will no longer be able to meet its obligations after all, you need to take action in time. That way, you will not be surprised by unexpected write-offs and loss of turnover. Xolv has tools to assess the creditworthiness of national and international companies. It is also important to have your credit management in good order. This reduces the chances of late payment or even no payment at all. And that process starts even before you enter into an agreement with your customer. Acting on time, thoroughly and consistently is crucial, as is using the right software. Xolv can provide that too.
