The number of registered payment defaults and bankruptcies continue to grow and the risk of a customer’s inability to pay in trade credit is increasing due to this. For this reason, an entrepreneur has to monitor the company’s accounts receivable on a regular basis and not just at the end of the financial year. When a debt cannot be recovered, it can be registered as credit loss in bookkeeping. In this case, the credit loss will be registered in with other operating expenses and is also deducted from accounts receivable. If the sale has been subject to VAT, the previously paid VAT will be recovered through the registered credit loss and it is eligible for deductions in taxation.
Registration can be done as soon as the recovery of credit proves to be unsuccessful or the debtor has filed for debt restructuring or bankruptcy. In other words, in registering the credit loss, one does not need to wait for the debtor to file bankruptcy. Registration can be done through a credit loss recommendation done by a collection agency or through a memo voucher. The memo voucher needs to contain the reason for credit loss.
Can credit loss be prevented? Here are ways in which you can ensure a reasonable trade credit:
- Check the client’s creditworthiness
- Constantly follow the client’s business
- Anticipate and negotiate
- Trust facts- don’t take unnecessary risks