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Here's how to deal with a bad debt problem in your company

by , 18 August 2014
Bad debt can sink your company in a black hole of financial problems. You can't always predict when a seemingly reliable creditor will default on him credit payment.

But you don't immediately have to start planning for liquidation the minute you realise you have a bad debt problem. SARS has a way for businesses in this position to get out of this financial disaster.

If your company needs help dealing with a bad debt problem, here's what you need to do...

 

Here's what you need to do to deal with your bad debt problem

 
The great news here is SARS lets you claim bad debt as a tax deduction. This means you can write your loss off against your income tax. But first, you have to meet these three conditions:
 
Condition #1: A creditor must owe you money;
 
Condition #2: You included the outstanding money in your taxable income in any previous year of assessment; and
 
Condition #3: You've tried and realised you can't recover the outstanding balance.
 
But SARS doesn't just go around letting businesses claim bad debt deductions without proof. You have to prove you deserve the deduction by showing SARS you meet these three conditions. 
 
Here's how to prove your situation to SARS.
 
*********** Hot off the press  ************
 
What do SARS and CIPC say about accounting reports?
 
 
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Here's how to prove to SARS that you meet the above three conditions

 
1. Show SARS your financial records that indicate you gave a client credit and he never repaid it;
 
2. Include accounting and tax records that indicate when you included that amount into your tax for the previous year; and 
 
3. Show SARS the proof of all of your attempts to reclaim the money from your creditor. This can include copies of written reminders and recordings of phone calls.
 
 
Once you prove this, SARS will happily give you the tax deductions and you can get back in to the black with your finances. 
 

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