Provisioning for Doubtful Debts
A doubtful-debt provision is how prudent businesses recognise, in advance, that not every invoice will be paid in full.
What you'll learn
- The difference between a provision and a write-off
- Why provisioning gives a truer financial picture
- A simple, sensible way to set a provision
- How to keep your provision useful over time
6 min read
Provision versus write-off
A doubtful-debt provision is an estimate set aside for debts that may not be paid, while a write-off recognises a specific debt that almost certainly will not be. A provision is forward-looking and applies across your ledger; a write-off is a final call on one account. Both keep your reporting honest, but they answer slightly different questions about your receivables.
Why it matters
Carrying every receivable at full value assumes perfect collection, which rarely happens. A provision gives a more realistic view of the cash you can actually expect, which supports better decisions about spending, lending, and growth. It also softens the shock of an individual failure, because you have already acknowledged that some portion of your ledger was always at risk.
Setting a provision
A common, sensible approach is to look at your overdue balances by age — the older they are, the less likely they are to be paid in full — and apply a reasonable expectation of loss to each band, informed by your own history. The point is not false precision but a defensible estimate. Pair it with active collection: use a simple calculator to see how overdue balances affect your position.
Keeping it useful
Review your provision regularly and adjust it as accounts are paid, recovered, or written off, and as your experience of bad debts evolves. A stale provision misleads as much as none at all. Used well, it becomes a feedback loop that sharpens your credit terms and your sense of which customers truly warrant caution.
A note on advice
This is general information only, not legal, financial, or tax advice. Accounting standards and tax treatment vary, so consult your accountant on how to set and report a provision.
Key takeaways
- A provision estimates likely losses; a write-off finalises a specific one.
- Provisioning gives a truer view of expected cash.
- Age your overdue balances and apply a defensible loss expectation.
- Review and adjust the provision regularly.
Frequently asked questions
Is a provision the same as writing a debt off?
No. A provision is a forward-looking estimate across your ledger; a write-off finalises one specific uncollectable debt. General information only.
How do I decide how much to provide?
A common approach ages overdue balances and applies a reasonable loss expectation based on your own history. Confirm the method with your accountant.
Does a provision affect my tax?
Accounting and tax treatment can differ. Speak to your accountant about how a provision is treated in your circumstances.
Knowledge is good. Getting paid is better.
Merion's team recovers what you're owed — commission-only, no upfront fee.