What are doubtful debtors (dubieuze debiteuren)?

Doubtful (dubious) debtors are customers for whom it is uncertain whether they will ever pay the invoice or invoices. This uncertainty arises, for example, because the customer is in financial trouble themselves and perhaps cannot (or can no longer) pay the invoice. Because the chance of payment from these debtors is sometimes very small, they are also referred to as bad debts or uncollectible invoices.

Reclaiming VAT from doubtful debtors

When a company files a VAT return, the total VAT amount of the sales invoices and all purchase invoices is calculated. Subsequently, these amounts are subtracted from each other, and the company must pay or receive an amount. The VAT return does not look at the payment status of an invoice. This means that you simply pay the VAT on a sales invoice that has not yet been paid to the Tax Authorities. If an invoice ultimately proves to be uncollectible, the company is allowed to reclaim the advanced VAT.

How do you prevent doubtful debtors?

Bad debts can be a serious problem for companies. After all, the company is counting on the income, while it is not going to come in at all. Nevertheless, as a company, you can do a number of things to prevent doubtful debtors as much as possible.

1. Common sense

It may seem obvious, but as an entrepreneur, you might know the customer best. If a company doubts a customer's ability to pay, it is important to listen carefully to this gut feeling. Consider, for example, an advance payment or a maximum amount eligible for deferred payment.

2. Check creditworthiness

If an entrepreneur doubts the creditworthiness of a (potential) customer, you can check this. For instance, a lot of financial information can be found at the Chamber of Commerce (KvK). Think of the annual accounts with balance sheets, etc. Additionally, there are agencies that can conduct creditworthiness checks. If you want to have a creditworthiness check performed as a company, please contact incasso.nl. Incasso.nl has various options to check the creditworthiness of potential customers in advance.

3. Adequate accounts receivable management

Good accounts receivable management is very important for a company. Whether customers pay on time or not has direct consequences for a company's liquidity. Liquidity shows whether sufficient financial resources are present to meet all obligations. Once the due date of an invoice has been reached, it is important not to wait too long. This can be done, for example, by sending a reminder. In a payment reminder, you let the customer know that the invoice has not yet been paid and ask if they can look into it. Do not be too strict in a first reminder; a customer may simply have forgotten the invoice. If payment remains outstanding after a reminder, you can send another payment reminder or even a final summons. If the customer is a private individual, you are obligated to send a final summons (WIK-letter).

4. Engage a collection agency in time

A collection agency specializes in collecting unpaid invoices. If a customer still does not pay after a reminder, it is advisable to engage the collection agency in time. A collection agency like incasso.nl will collect the invoice from the customer without the intervention of a judge. The collection costs charged for this are for the customer's account. This means that the collection trajectory costs the entrepreneur absolutely nothing. The collection agency has various communication options to make your customer pay after all.

Doubtful debtors in bookkeeping

The moment a company expects that a customer will no longer pay, the invoice amount is moved from the 'debtors' ledger to the 'doubtful debtors' ledger. If the 'doubtful debtors' item becomes too large, this is very disadvantageous for the company. Normally, it is expected that the money customers still have to pay will be received neatly. With the 'doubtful debtors' item, this is not the case. Therefore, it is important that the 'doubtful debtors' item is monitored closely.

Provision for bad debts

At many companies, not all invoices are ultimately paid. This means that they miss out on a portion of the turnover because the payments are never going to come in. The percentage of uncollectible invoices depends, among other things, on how the company handles accounts receivable management and debt collection.

Some companies choose to make a provision for doubtful debtors. This means that they create a kind of "piggy bank" in the bookkeeping to compensate for the missed income from uncollectible invoices. This compensation can be done in a number of different ways. For example, you can charge a fixed annual percentage for bad debts. A second way is to write off each uncollectible invoice separately.