If you are part of a small or medium sized enterprise in Australia, or even working for a large multinational, having good credit management policies are part of successful business practice.
Avoiding Double Punishment
The ability to get paid for the work you’ve done, or the services you’ve provided, can avoid a “double hit” to your balance sheet.
If you don’t get paid for work already done, not only do you lose the money you’ve already earned, you also lose the money you could have earned working for another client. In addition, failure to collect unpaid money also amounts to wasted employee time, which can be a big motivation killer.
Unfortunately, even with strong credit management policies, sometimes it is impossible to collect a debt.
A bad debt is an amount of money that cannot be repaid for a variety of reasons. Failure to comply with payment demands or court orders as a result of bankruptcy, liquidation, or death are common reasons for bad debts.
The Government recognised some time ago that Australian businesses should not be disadvantaged if one or more of their debtors was unable to settle a debt.
As a result there are a number of taxation consequences and treatments that creditors should be aware of if a bad debt does arise. The first is that bad debts can, in some circumstances, be claimed as income tax deductions.
To do this, the bad debt must be written off formally and in writing. In addition, your financial accounts must reflect this with a specific item accounting for the bad debt, and it must be in the same financial year as you are seeking to claim the deduction.
As a record keeping matter, all written materials relating to the bad debt must be retained for up to seven years in the event that the Australian Taxation Office requires substantiation of the deduction.
Avoid Bad Debts
Of course, another way to avoid a bad debt is to speak to a professional and experienced debt collection company like Challenge Collections. We can pursue any unpaid debt on your behalf and have a proven track record of helping clients of all sizes recover substantial unpaid invoices, bills and funds from their debtors.
To find out more about a how the experienced Brisbane team at Challenge Collections can help you avoid the hit to your bottom line that results from a bad debt, please give us a call, send us an email or get in contact through the easy to use form on the website.