Bad Debt Provision Checklist

Before you start

A provision is an estimate, so it needs a clean base and a clear method before you can defend it. Make sure the ledger is reconciled and your approach is agreed first.

• Confirm the aged trial balance is reconciled and cash is fully applied, so the base figures are sound.
• Agree the provisioning policy: a percentage-by-bucket basis, a specific-account basis, or a blend.
• Gather context on at-risk accounts: disputes, broken promises, insolvency signals.
• Note that provisioning treatment and any tax deduction differ — this is general information, so confirm both with your accountant.

Step 1 — Set the general (collective) provision

1. Take the reconciled aged trial balance and split it into ageing buckets.
2. Apply your agreed loss percentage to each bucket — older buckets carry a higher rate.
3. Base those percentages on your own historical collection experience where you can.
4. Total the result as your collective provision and document how it was built.

Step 2 — Add specific provisions for known risks

1. Review individually any large or clearly troubled accounts rather than relying on the bucket rate alone.
2. Provide specifically against debts where there is real evidence of non-payment — insolvency, a hard dispute, no contact.
3. Avoid double-counting: if an account is provided for specifically, exclude it from the collective calculation.
4. Note the trigger and evidence behind each specific provision.

Step 3 — Record, review and decide on write-offs

1. Post the movement in the provision and explain the change from last month.
2. Separate genuine write-offs (debt removed from the ledger) from the provision (an estimate against debt still held).
3. Get the provision and any write-offs approved at the right level.
4. Schedule a review of provided accounts so recoveries are released back to income.

Before you provide fully against a stubborn account, a free debt appraisal can tell you whether it is genuinely uncollectable or simply needs firmer recovery. See also how to issue a credit note when a balance is genuinely not owed.

Common mistakes

• Confusing provision and write-off. A provision keeps the debt on the ledger; a write-off removes it. Treating them as the same overstates the loss or the asset.
• Double-counting. Providing for an account both specifically and in the collective rate overstates the provision.
• No documented basis. A round-number provision with no method is hard to defend at audit.
• Never releasing. If a provided debt is paid, the provision must be released back, or income is understated.