{"id":4574,"date":"2024-06-22T15:21:26","date_gmt":"2024-06-22T15:21:26","guid":{"rendered":"https:\/\/bpcpasa.com\/?p=4574"},"modified":"2025-04-27T12:54:43","modified_gmt":"2025-04-27T12:54:43","slug":"write-off-of-debt-and-doubtful-debts","status":"publish","type":"post","link":"https:\/\/bpcpasa.com\/en\/write-off-of-debt-and-doubtful-debts\/","title":{"rendered":"Write-off of Debt and Doubtful Debts"},"content":{"rendered":"\r\n<p class=\"\" dir=\"ltr\" data-start=\"148\" data-end=\"535\">The management of doubtful debts, including the write-off of debt,\u00a0is an essential part of managing the risks of <a href=\"https:\/\/bpcpasa.com\/en\/blog\/accounting-fraud\/\"><strong>financial statement manipulation<\/strong><\/a> in companies. This policy contributes to improving cash flow management and reducing the risks of financial manipulation associated with uncollected debts. Below is a detailed explanation of how to build an effective policy for doubtful debts and debt write-off:<\/p>\r\n<h2 dir=\"ltr\" data-start=\"148\" data-end=\"535\">The policy for managing the Write-off of Debt and Doubtful Debts<\/h2>\r\n<h3 dir=\"ltr\" data-start=\"540\" data-end=\"595\"><strong data-start=\"540\" data-end=\"595\">1- Defining the Objective of the Debt Write-off Policy<\/strong><\/h3>\r\n<ul dir=\"ltr\" data-start=\"597\" data-end=\"905\">\r\n<li class=\"\" data-start=\"597\" data-end=\"718\">\r\n<p class=\"\" data-start=\"599\" data-end=\"718\"><strong data-start=\"599\" data-end=\"625\">Maintaining liquidity:<\/strong> Ensuring the availability of the necessary liquidity for the company to operate effectively.<\/p>\r\n<\/li>\r\n<li class=\"\" data-start=\"719\" data-end=\"795\">\r\n<p class=\"\" data-start=\"721\" data-end=\"795\"><strong data-start=\"721\" data-end=\"741\">Risk management:<\/strong> Reducing the risks associated with uncollected debts.<\/p>\r\n<\/li>\r\n<li class=\"\" data-start=\"796\" data-end=\"905\">\r\n<p class=\"\" data-start=\"798\" data-end=\"905\"><strong data-start=\"798\" data-end=\"824\">Establishing criteria:<\/strong> Setting clear criteria to identify doubtful debts and the <strong data-start=\"883\" data-end=\"904\">write-off of debt<\/strong>.<\/p>\r\n<\/li>\r\n<\/ul>\r\n<h3 dir=\"ltr\" data-start=\"910\" data-end=\"940\"><strong data-start=\"910\" data-end=\"940\">2- Identifying Doubtful Debts<\/strong><\/h3>\r\n<ul dir=\"ltr\" data-start=\"942\" data-end=\"1566\">\r\n<li class=\"\" data-start=\"942\" data-end=\"1302\">\r\n<p class=\"\" data-start=\"944\" data-end=\"988\"><strong data-start=\"944\" data-end=\"988\">Criteria for determining doubtful debts:<\/strong><\/p>\r\n<ul data-start=\"991\" data-end=\"1302\">\r\n<li class=\"\" data-start=\"991\" data-end=\"1099\">\r\n<p class=\"\" data-start=\"993\" data-end=\"1099\"><strong data-start=\"993\" data-end=\"1014\">Delay in payment:<\/strong> Setting a delay threshold after which debts are considered doubtful (e.g., 90 days).<\/p>\r\n<\/li>\r\n<li class=\"\" data-start=\"1102\" data-end=\"1227\">\r\n<p class=\"\" data-start=\"1104\" data-end=\"1227\"><strong data-start=\"1104\" data-end=\"1143\">Financial assessment of the debtor:<\/strong> Assessing the financial situation of customers to determine their ability to repay.<\/p>\r\n<\/li>\r\n<li class=\"\" data-start=\"1230\" data-end=\"1299\">\r\n<p class=\"\" data-start=\"1232\" data-end=\"1299\"><strong data-start=\"1232\" data-end=\"1254\">Historical record:<\/strong> Reviewing the debtor\u2019s past payment history.<\/p>\r\n<\/li>\r\n<\/ul>\r\n<\/li>\r\n<li class=\"\" data-start=\"1303\" data-end=\"1566\">\r\n<p class=\"\" data-start=\"1305\" data-end=\"1333\"><strong data-start=\"1305\" data-end=\"1333\">Debt evaluation process:<\/strong><\/p>\r\n<ul data-start=\"1336\" data-end=\"1566\">\r\n<li class=\"\" data-start=\"1336\" data-end=\"1464\">\r\n<p class=\"\" data-start=\"1338\" data-end=\"1464\"><strong data-start=\"1338\" data-end=\"1366\">Classification of debts:<\/strong> Categorizing debts into groups based on their collectibility (e.g., good, doubtful, written-off).<\/p>\r\n<\/li>\r\n<li class=\"\" data-start=\"1467\" data-end=\"1566\">\r\n<p class=\"\" data-start=\"1469\" data-end=\"1566\"><strong data-start=\"1469\" data-end=\"1490\">Periodic updates:<\/strong> Reviewing and classifying debts periodically to ensure updated assessments.<\/p>\r\n<\/li>\r\n<\/ul>\r\n<\/li>\r\n<\/ul>\r\n<h3 dir=\"ltr\" data-start=\"1571\" data-end=\"1617\"><strong data-start=\"1571\" data-end=\"1617\">3- Establishing Provisions for Doubtful Debts<\/strong><\/h3>\r\n<p class=\"\" dir=\"ltr\" data-start=\"1621\" data-end=\"1649\">A. <strong data-start=\"1624\" data-end=\"1649\">Provision estimation:<\/strong><\/p>\r\n<ul dir=\"ltr\" data-start=\"1653\" data-end=\"1888\">\r\n<li class=\"\" data-start=\"1653\" data-end=\"1793\">\r\n<p class=\"\" data-start=\"1655\" data-end=\"1793\"><strong data-start=\"1655\" data-end=\"1679\">Percentage of debts:<\/strong> Allocating a percentage of total doubtful debts as provisions (e.g., 10% of debts overdue for more than 90 days).<\/p>\r\n<\/li>\r\n<li class=\"\" data-start=\"1797\" data-end=\"1884\">\r\n<p class=\"\" data-start=\"1799\" data-end=\"1884\"><strong data-start=\"1799\" data-end=\"1823\">Historical analysis:<\/strong> Using historical data to estimate an appropriate percentage.<\/p>\r\n<\/li>\r\n<\/ul>\r\n<p class=\"\" dir=\"ltr\" data-start=\"1891\" data-end=\"1917\">B. <strong data-start=\"1894\" data-end=\"1917\">Accounting entries:<\/strong><\/p>\r\n<ul dir=\"ltr\" data-start=\"1921\" data-end=\"2131\">\r\n<li class=\"\" data-start=\"1921\" data-end=\"2014\">\r\n<p class=\"\" data-start=\"1923\" data-end=\"2014\"><strong data-start=\"1923\" data-end=\"1949\">Setting up provisions:<\/strong> Recording provisions for doubtful debts in the accounting books.<\/p>\r\n<\/li>\r\n<li class=\"\" data-start=\"2018\" data-end=\"2131\">\r\n<p class=\"\" data-start=\"2020\" data-end=\"2038\"><strong data-start=\"2020\" data-end=\"2038\">Journal entry:<\/strong><\/p>\r\n<ul data-start=\"2044\" data-end=\"2131\">\r\n<li class=\"\" data-start=\"2044\" data-end=\"2083\">\r\n<p class=\"\" data-start=\"2046\" data-end=\"2083\"><strong data-start=\"2046\" data-end=\"2056\">Debit:<\/strong> Expense for doubtful debts<\/p>\r\n<\/li>\r\n<li class=\"\" data-start=\"2089\" data-end=\"2131\">\r\n<p class=\"\" data-start=\"2091\" data-end=\"2131\"><strong data-start=\"2091\" data-end=\"2102\">Credit:<\/strong> Provision for doubtful debts<\/p>\r\n<\/li>\r\n<\/ul>\r\n<\/li>\r\n<\/ul>\r\n<h3 dir=\"ltr\" data-start=\"2136\" data-end=\"2180\"><strong data-start=\"2136\" data-end=\"2180\">4- Collection Procedures for Doubtful Debts<\/strong><\/h3>\r\n<p class=\"\" dir=\"ltr\" data-start=\"2184\" data-end=\"2211\">A. <strong data-start=\"2187\" data-end=\"2211\">Internal collection:<\/strong><\/p>\r\n<ul dir=\"ltr\" data-start=\"2215\" data-end=\"2438\">\r\n<li class=\"\" data-start=\"2215\" data-end=\"2317\">\r\n<p class=\"\" data-start=\"2217\" data-end=\"2317\"><strong data-start=\"2217\" data-end=\"2236\">Direct contact:<\/strong> Contacting debtors to remind them of their dues and determine reasons for delay.<\/p>\r\n<\/li>\r\n<li class=\"\" data-start=\"2321\" data-end=\"2434\">\r\n<p class=\"\" data-start=\"2323\" data-end=\"2434\"><strong data-start=\"2323\" data-end=\"2344\">Official notices:<\/strong> Sending formal letters outlining the due date and potential consequences for non-payment.<\/p>\r\n<\/li>\r\n<\/ul>\r\n<p class=\"\" dir=\"ltr\" data-start=\"2441\" data-end=\"2468\">B. <strong data-start=\"2444\" data-end=\"2468\">External collection:<\/strong><\/p>\r\n<ul dir=\"ltr\" data-start=\"2472\" data-end=\"2677\">\r\n<li class=\"\" data-start=\"2472\" data-end=\"2558\">\r\n<p class=\"\" data-start=\"2474\" data-end=\"2558\"><strong data-start=\"2474\" data-end=\"2498\">Collection agencies:<\/strong> Contracting specialized agencies to recover doubtful debts.<\/p>\r\n<\/li>\r\n<li class=\"\" data-start=\"2562\" data-end=\"2677\">\r\n<p class=\"\" data-start=\"2564\" data-end=\"2677\"><strong data-start=\"2564\" data-end=\"2581\">Legal action:<\/strong> Resorting to legal procedures and <a href=\"https:\/\/my.gov.sa\/en\/wps\/portal\/snp\/servicesDirectory\/!ut\/p\/z0\/fY7BCsIwEES_pufdSitei4dCLlVErbmUJVZZTTZtEoufb9C7x2Ee8wY09KCFFr5TYi9kc77o9aB2m6pssOy6VlW435bHVa1OiFUNBwqgQP-H8go_5lk3oI2XNL4T9M5wGigUSNYWyHLzwX2txjv3Eja_C3KdfExk4xgWNmMsMPeTJZYUYXq25w_oUhaG?WCM_Page.ResetAll=true&amp;sort=rel\"><strong>filing complaints with relevant authorities<\/strong><\/a> in extreme cases.<\/p>\r\n<\/li>\r\n<\/ul>\r\n<h3 dir=\"ltr\" data-start=\"2682\" data-end=\"2700\"><strong data-start=\"2682\" data-end=\"2700\">5- Debt Write-off<\/strong><\/h3>\r\n<p class=\"\" dir=\"ltr\" data-start=\"2704\" data-end=\"2720\">A. <strong data-start=\"2707\" data-end=\"2720\">Criteria:<\/strong><\/p>\r\n<ul dir=\"ltr\" data-start=\"2724\" data-end=\"2947\">\r\n<li class=\"\" data-start=\"2724\" data-end=\"2827\">\r\n<p class=\"\" data-start=\"2726\" data-end=\"2827\"><strong data-start=\"2726\" data-end=\"2751\">Inability to collect:<\/strong> Ensuring that all possible efforts to collect the debt have been exhausted.<\/p>\r\n<\/li>\r\n<li class=\"\" data-start=\"2831\" data-end=\"2944\">\r\n<p class=\"\" data-start=\"2833\" data-end=\"2944\"><strong data-start=\"2833\" data-end=\"2848\">Time frame:<\/strong> When the debt exceeds a certain time period without being collected (e.g., more than 180 days).<\/p>\r\n<\/li>\r\n<\/ul>\r\n<p class=\"\" dir=\"ltr\" data-start=\"2950\" data-end=\"2968\">B. <strong data-start=\"2953\" data-end=\"2968\">Procedures:<\/strong><\/p>\r\n<ul dir=\"ltr\" data-start=\"2972\" data-end=\"3271\">\r\n<li class=\"\" data-start=\"2972\" data-end=\"3083\">\r\n<p class=\"\" data-start=\"2974\" data-end=\"3083\"><strong data-start=\"2974\" data-end=\"2996\">Internal approval:<\/strong> Obtaining senior management approval before proceeding with the <strong data-start=\"3061\" data-end=\"3082\">write-off of debt<\/strong>.<\/p>\r\n<\/li>\r\n<li class=\"\" data-start=\"3087\" data-end=\"3158\">\r\n<p class=\"\" data-start=\"3089\" data-end=\"3158\"><strong data-start=\"3089\" data-end=\"3110\">Accounting entry:<\/strong> Writing off the debt in the accounting records.<\/p>\r\n<\/li>\r\n<li class=\"\" data-start=\"3162\" data-end=\"3271\">\r\n<p class=\"\" data-start=\"3164\" data-end=\"3182\"><strong data-start=\"3164\" data-end=\"3182\">Journal entry:<\/strong><\/p>\r\n<ul data-start=\"3188\" data-end=\"3271\">\r\n<li class=\"\" data-start=\"3188\" data-end=\"3229\">\r\n<p class=\"\" data-start=\"3190\" data-end=\"3229\"><strong data-start=\"3190\" data-end=\"3200\">Debit:<\/strong> Provision for doubtful debts<\/p>\r\n<\/li>\r\n<li class=\"\" data-start=\"3235\" data-end=\"3268\">\r\n<p class=\"\" data-start=\"3237\" data-end=\"3268\"><strong data-start=\"3237\" data-end=\"3248\">Credit:<\/strong> Accounts receivable<\/p>\r\n<\/li>\r\n<\/ul>\r\n<\/li>\r\n<\/ul>\r\n<p class=\"\" dir=\"ltr\" data-start=\"3274\" data-end=\"3295\">C. <strong data-start=\"3277\" data-end=\"3295\">Documentation:<\/strong><\/p>\r\n<ul dir=\"ltr\" data-start=\"3299\" data-end=\"3531\">\r\n<li class=\"\" data-start=\"3299\" data-end=\"3428\">\r\n<p class=\"\" data-start=\"3301\" data-end=\"3428\"><strong data-start=\"3301\" data-end=\"3320\">Record keeping:<\/strong> Maintaining all documents related to debt collection attempts and procedures for the <strong data-start=\"3406\" data-end=\"3427\">write-off of debt<\/strong>.<\/p>\r\n<\/li>\r\n<li class=\"\" data-start=\"3432\" data-end=\"3531\">\r\n<p class=\"\" data-start=\"3434\" data-end=\"3531\"><strong data-start=\"3434\" data-end=\"3455\">Review and audit:<\/strong> Ensuring all cases of debt write-off are reviewed and audited periodically.<\/p>\r\n<\/li>\r\n<\/ul>\r\n<h3 dir=\"ltr\" data-start=\"3536\" data-end=\"3576\"><strong data-start=\"3536\" data-end=\"3576\">6- Monitoring and Evaluating the Policy<\/strong><\/h3>\r\n<p class=\"\" dir=\"ltr\" data-start=\"3580\" data-end=\"3604\">A. <strong data-start=\"3583\" data-end=\"3604\">Periodic reports:<\/strong><\/p>\r\n<ul dir=\"ltr\" data-start=\"3608\" data-end=\"3827\">\r\n<li class=\"\" data-start=\"3608\" data-end=\"3720\">\r\n<p class=\"\" data-start=\"3610\" data-end=\"3720\"><strong data-start=\"3610\" data-end=\"3632\">Financial reports:<\/strong> Preparing regular reports that show the status of doubtful debts and written-off debts.<\/p>\r\n<\/li>\r\n<li class=\"\" data-start=\"3724\" data-end=\"3823\">\r\n<p class=\"\" data-start=\"3726\" data-end=\"3823\"><strong data-start=\"3726\" data-end=\"3749\">Financial analysis:<\/strong> Analyzing the impact of doubtful debts on the company\u2019s financial health.<\/p>\r\n<\/li>\r\n<\/ul>\r\n<p class=\"\" dir=\"ltr\" data-start=\"3830\" data-end=\"3854\">B. <strong data-start=\"3833\" data-end=\"3854\">Periodic updates:<\/strong><\/p>\r\n<ul dir=\"ltr\" data-start=\"3858\" data-end=\"4090\">\r\n<li class=\"\" data-start=\"3858\" data-end=\"3974\">\r\n<p class=\"\" data-start=\"3860\" data-end=\"3974\"><strong data-start=\"3860\" data-end=\"3878\">Policy review:<\/strong> Regularly reviewing the policy to ensure its effectiveness and making adjustments as necessary.<\/p>\r\n<\/li>\r\n<li class=\"\" data-start=\"3978\" data-end=\"4090\">\r\n<p class=\"\" data-start=\"3980\" data-end=\"4090\"><strong data-start=\"3980\" data-end=\"4006\">Procedure improvement:<\/strong> Enhancing procedures based on findings and recommendations from audits and reports.<\/p>\r\n<\/li>\r\n<\/ul>\r\n<h3 dir=\"ltr\" data-start=\"4095\" data-end=\"4121\"><strong data-start=\"4095\" data-end=\"4121\">7- Training and Awareness<\/strong><\/h3>\r\n<ul dir=\"ltr\" data-start=\"4125\" data-end=\"4368\">\r\n<li class=\"\" data-start=\"4125\" data-end=\"4250\">\r\n<p class=\"\" data-start=\"4127\" data-end=\"4250\"><strong data-start=\"4127\" data-end=\"4146\">Staff training:<\/strong> Offering training programs for employees involved in managing doubtful debts and <strong data-start=\"4228\" data-end=\"4249\">write-off of debt<\/strong>.<\/p>\r\n<\/li>\r\n<li class=\"\" data-start=\"4253\" data-end=\"4368\">\r\n<p class=\"\" data-start=\"4255\" data-end=\"4368\"><strong data-start=\"4255\" data-end=\"4274\">Risk awareness:<\/strong> Educating staff on the importance of monitoring debt collection and avoiding financial risks.<\/p>\r\n<\/li>\r\n<\/ul>\r\n<h3 dir=\"ltr\" data-start=\"4373\" data-end=\"4409\"><strong data-start=\"4373\" data-end=\"4409\">8- Technology and Technical Support<\/strong><\/h3>\r\n<ul dir=\"ltr\" data-start=\"4413\" data-end=\"4638\">\r\n<li class=\"\" data-start=\"4413\" data-end=\"4518\">\r\n<p class=\"\" data-start=\"4415\" data-end=\"4518\"><strong data-start=\"4415\" data-end=\"4443\">Debt management systems:<\/strong> Using specialized systems and software to manage and track doubtful debts.<\/p>\r\n<\/li>\r\n<li class=\"\" data-start=\"4521\" data-end=\"4638\">\r\n<p class=\"\" data-start=\"4523\" data-end=\"4638\"><strong data-start=\"4523\" data-end=\"4546\">Advanced analytics:<\/strong> Applying advanced analytics to estimate provisions and monitor debt collection performance.<\/p>\r\n<\/li>\r\n<\/ul>\r\n<h2 dir=\"ltr\" data-start=\"4640\" data-end=\"4654\"><strong data-start=\"4640\" data-end=\"4654\">Conclusion<\/strong><\/h2>\r\n<p class=\"\" dir=\"ltr\" data-start=\"4656\" data-end=\"5026\">Ultimately, building an effective policy for managing doubtful debts and write-off of debt requires setting clear standards, precise procedures, and continuous monitoring to achieve the company\u2019s financial goals. By implementing these steps, companies can improve cash flow management, reduce financial risks, and contribute to business sustainability and stability.<\/p>\r\n","protected":false},"excerpt":{"rendered":"<p>The management of doubtful debts, including the write-off of debt,\u00a0is an essential part of managing the risks of financial statement manipulation in companies. This policy contributes to improving cash flow management and reducing the risks of financial manipulation associated with uncollected debts. Below is a detailed explanation of how to build an effective policy for&#8230;<\/p>\n","protected":false},"author":16,"featured_media":3779,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_kad_post_transparent":"default","_kad_post_title":"default","_kad_post_layout":"default","_kad_post_sidebar_id":"","_kad_post_content_style":"default","_kad_post_vertical_padding":"default","_kad_post_feature":"","_kad_post_feature_position":"","_kad_post_header":false,"_kad_post_footer":false,"_kad_post_classname":"","footnotes":""},"categories":[840],"tags":[1430,1432,1431,1429],"class_list":["post-4574","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog","tag-debt-cancellation","tag-debt-collection","tag-doubtful-debts","tag-preparing-debt-provisions"],"_links":{"self":[{"href":"https:\/\/bpcpasa.com\/en\/wp-json\/wp\/v2\/posts\/4574","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bpcpasa.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bpcpasa.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bpcpasa.com\/en\/wp-json\/wp\/v2\/users\/16"}],"replies":[{"embeddable":true,"href":"https:\/\/bpcpasa.com\/en\/wp-json\/wp\/v2\/comments?post=4574"}],"version-history":[{"count":6,"href":"https:\/\/bpcpasa.com\/en\/wp-json\/wp\/v2\/posts\/4574\/revisions"}],"predecessor-version":[{"id":5260,"href":"https:\/\/bpcpasa.com\/en\/wp-json\/wp\/v2\/posts\/4574\/revisions\/5260"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bpcpasa.com\/en\/wp-json\/wp\/v2\/media\/3779"}],"wp:attachment":[{"href":"https:\/\/bpcpasa.com\/en\/wp-json\/wp\/v2\/media?parent=4574"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bpcpasa.com\/en\/wp-json\/wp\/v2\/categories?post=4574"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bpcpasa.com\/en\/wp-json\/wp\/v2\/tags?post=4574"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}