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Bad Debts
- 07 Jul 2024
- 4 Minutes to read
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Bad Debts
- Updated on 07 Jul 2024
- 4 Minutes to read
- Print
- DarkLight
- PDF
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Marlin Tyre and Mechanical Workshop Software enables bad debts to be written-off and recorded using the Customer Orders and Customer Payments modules.
If attempting to collect debts becomes impractical or futile, they are usually written off as losses.
This situation can occur due to various reasons, such as the customer declaring bankruptcy, undergoing financial hardship or simply refusing to pay.
If a customer's debts are deemed irrecoverable, their outstanding balance needs to be written off using the Customer Orders module, and their invoices cleared by allocating the written-off amount using the Customer Payments module.
Tip
When writing off bad debts, it might also be a good idea to change the relevant customers' account statuses to Cash Only to prevent incurring further liabilities.
Reducing Customer Balances
Quick Ref
- Open the Customer Orders module (Daily Activity > Customer Orders).
- Add a credit note for the customer.
- In the Information tab, select Bad Debt as the Credit Note Reason.
- In the Order Details tab, add an +Account posting for the outstanding amount.
- Credit the credit note to their account, as usual.
Use the Customer Orders module (Daily Activity > Customer Orders) to add a credit note for the customer.
In the Information tab, use the Credit Note Reason picker to select Bad Debt.
Note
If there is no Bad Debt Credit Note Reason, one can be added using the Lookup Lists module.
In the Order Details tab, add an account posting by clicking on the +Account button to the top-right of the details list.
Use the Item picker to select the Bad Debts account.
The Description cell will filled with GL account name automatically, but can be edited if necessary.
In the Unit Price cell, enter the total amount of the customer's outstanding invoices, including any tax recorded in the original transaction.
Check that the amount is entered correctly and credit the customer's accountby clicking on the Credit button at the top-right of the module window.
Note
The Bad Debts GL account should be set up with the appropriate Sell Tax Code so that any tax adjustments are taken care of automatically when this account is used on a customer order.
Tip
Customer balances can also be reduced using regular customer orders, rather than credit notes. However, the amounts then need to be entered as negative values, in order to credit them to the customer's account.
Note
Customer orders/credits cannot be backdated. The balance reduction will therefore be recorded as occurring on the date that the customer order is credited. Although journals can be recorded for specific dates, customers cannot be added to them, so they cannot be used to write off debts.
Clearing Customer Invoices
Quick Ref
- Open the Customer Payments module (Daily Activity > Payments).
- Add a payment for the customer.
- Do not enter a payment amount.
- Allocate the credit note amount against the outstanding invoices, so that the total balance is $0.
- Commit the payment, as usual.
Once the customer's balance has been reduced, the relevant invoices need to be cleared by performing a zero-value customer payment.
The Customer Payments module can be accessed by selecting Daily Activity > Customer Payments from the menu bar.
Add a new customer payment for the relevant customer.
Leave the Payment Amount as blank or enter 0.
Click on the Allocations tab and use the Allocations list to allocate the written-off balance against the relevant invoices.
Once all the invoices have been allocated against, both the Total Amount Allocated and the Balance Remaining to Allocate (shown at the bottom-right of the Allocations list) is $0.
Tip
Full transaction amounts can be quickly allocated by clicking in the relevant Allocation cell and pressing Enter on the keyboard.
The customer payment can then be committed as usual, by clicking on the Commit button at the top of the module window.
Customer Account Holds
Quick Ref
- Open the customer's master file (Master Files > Customer > Customers).
- Click on the Accounting tab.
- Change the Credit Status drop-down to On Hold, Prompt for Payment or Cash Only.
- To deactivate the customer entirely, untick the Active checkbox in their Details tab.
After writing-off a customer's bad-debts, you may also want to change the status of their account to prevent further invoiced being applied to it:
Changing the status to Credit Hold prevents invoices from being applied to their account, (other than by users with specific override permissions).
Changing the status to Prompt for Payment will prompt a cash payment when invoicing the customer, but can be overridden and applied to the customer's account instead by any user.
Changing the status to Cash Only removes the account option when invoicing the customer's transactions, preventing invoices from being applied to their account. It is effectively the same as removing the account itself, except that it can be easily reactivated again by changing the status.
Customer account statuses can be changed using the Credit Status drop-down in the Accounting tab of their customer master file.
Note
If they have no open orders and there is no outstanding balance on their account, customers can also be deactivated entirely by unticking the Active checkbox at the top-right of the General section in the Details tab of their master file.
Deactivated customer master files can still be viewed by changing the Customer Master Files Search list filter to All, and can be reactivated at any time by opening them and re-ticking the Active checkbox.
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