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Is bad debt forcing your business into the red? Use these seven tips to get a little help from SARS

by , 25 April 2014
Are you dealing with bad debt because some of your debtors just won't pay up? Don't go into the red. You can ask SARS for a doubt debt or bad debt deduction allowance. You just need to do a few things first and have the right documentation. Here's everything you need to know to get SARS to lighten your tax burden...

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How to improve cash flow, analyse your financial statements and eliminate fraud in your company…
 
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What you need to do before SARS will grant a deduction allowance

You have to prove to SARS that you've done everything you can to claim back the debt. It's only when it can see that you've done everything and it's really irrecoverable, that SARS will grant you this allowance. 
 
And that means, you need to show that you have tried the following, says The Practical Accounting Loose Leaf :
 
1. Levy interest on overdue accounts;
2. Perhaps offer settlement discounts;
3. Send reminders to the debtor;
4. Send letters of demand; and
5. Telephonic contact between debt collectors and debtors to follow up on outstanding
6. Payment, and in final instance
7. Pursue legal action. 
 
If you do all this and the debt collection still hasn't been successful, SARS is more likely to give you an allowance for bad debt. But when you apply for the deduction, you also need to give SARS this information: 
 
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Are you spending TOO MUCH on accounting costs?
 
The truth is you could pay less accounting fees while at the same time prevent fraud, save on tax and Vat costs and keep up to date on changing legislation.
 
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Here's the information SARS needs to grant a bad debt deduction allowance 

Experts on Accounting and Tax Club say you'll need to provide:
 
1. The name of the debtor;
2. The date you incurred the debt;
3. How you incurred the debt;
4. Evidence that you incurred the debt in production of income; and
5. Reasons for regarding the debt as irrecoverable.
 
If SARS approves your application, it'll grant you the deduction. This will ease the financial burden a bit and help you get out of the red. 
 

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