“Diligence is the mother of good fortune. ” – Benjamin Disraeli
The best thing you can do for your business cash flow is to have in place an effective bad debt risk management policies and procedures. This would allow you to first manage risk rather than bad debt.
It is much easier to be proactive by implementing credit safeguards like bad debt risk management procedures rather than having to deal with it once it has reached the bad debt stage – often this is already too late for a large percentage of debt to be collected. Continue reading →
When a bad debt could not be collected after trying all possible collection methods, than a record adjustment must be made to reflect the uncollected payment. This is known as a Bad Debt Write Off. A general journal entry must be made to reflect the uncollected sale.
The basic for the accounting procedure is the same; the actual procedure depends on the accounting system you are using. Here is a helpful video courtesy of Doris Cahill on how to write off bad debt using MYOB accounting system.