There may be occasions when you want to write off some or all of a customer's debt to you. For example, if a customer ceases trading you will not be paid the outstanding debts owed you.
When this happens there are two methods for you to write off the debt. You can use one or both:
- Write off individual invoices, reclaim from HMRC any VAT you have paid on them and clear those transactions from Sage 200.
- Clear any remaining entries from the customer account, resetting the account balance to zero.
In addition, you may have small amounts left on a customer account that you want to write off, rather than the entire account balance. These amounts could be caused by rounding or other calculation discrepancies, or they're such a small amount it is easier to write it off than chase the customer for payment. In this case, use the Write Off Customer Small Amounts screen.
Write off individual invoices and reclaim VAT
When it becomes clear that a customer is not able to pay outstanding invoices and you have paid the VAT on those invoices, you can write off the debt and claim back from HMRC any VAT you have paid. Remember that there is a waiting period specified by HMRC that must lapse before you can reclaim the VAT paid on unpaid invoices. As of October 2014 the waiting period was 6 months.
Once transactions are more than six months old, you can choose to write them off. When you do this a credit note for the same value is created and allocated to the selected invoice.
Provide for bad debts
There may be occasions when you want to write off the debt before this six month period has elapsed. In this case you can write off the debt in two stages:
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Make provision for the bad debt.
Until the debt is written off, the value of the outstanding invoices is recorded on your Balance Sheet (Debtors Control). Making provision for the bad debts moves the value of the outstanding invoices to your Profit and Loss (Bad Debt Expense) until it's old enough to be fully written off. You do this on the Provide For and Correct Customer Bad Debt screen.
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Write off the bad debt.
This allows you to write off the debt and reclaim the VAT.
Write off the entire customer account
You can write off the entire debt on a customer account and set its balance to zero. You do this:
- When you have written off individual invoices and reclaimed the VAT paid on them.
- If you do not want to reclaim the VAT on the outstanding invoices.
- If there is no VAT to reclaim on the outstanding invoices.
While writing off the entire balance you can specify an amount of VAT to write off. This will affect the balance of your VAT nominal accounts on your Balance Sheet but will not affect your VAT Return.
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