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Revealed: Six ways to increase your chance of qualifying for a doubtful debt allowance

by , 24 July 2014
A debt is doubtful if it's passed its settlement date and you've tried everything to collect it but all your efforts have failed.

The good news is the Income Tax Act recognises that it's not easy to collect debt. As a result, it empowers you to claim a doubtful debt allowance.

Read on to discover six ways to increase your chance of qualifying for a doubtful debt allowance so you can avoid losing more money than you have to.

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Do these six things to increase your chance of qualifying for a doubtful debt allowance


The Practical Tax Loose Leaf Service says to qualify for the doubtful debt allowance you must make some effort to collect the outstanding amounts.
 

You should also:

#1: Levy interest on overdue accounts;

#2: Offer settlement discounts;

#3: Send reminders to the debtor;

#4: Send letters of demand;

#5: Phone the debtor to follow up on outstanding payment; and in the final instance

#6: Pursue legal action.
 

Important: If you sell assets or stock to a debtor, try recovering the remaining assets or stock that he hasn't used or paid yet.
 

It's also a good idea to have a debt management policy in place and consistently apply it.
 

If you do all this, you can justify to SARS that the debt is potentially irrecoverable and you're more likely to qualify for the allowance when your customers fail to pay on time.
 

Well there you have it: If there's a slight chance you can't recover a debt, you can claim a doubtful debt allowance to shrink your tax burdens. Just do the six things we've outlined to increase your chance of qualifying for a doubtful debt allowance.
 

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