One question that business owners often have to wrestle with at tax time is whether or not to write off a debt as “uncollectible.” If your business uses a cash basis accounting system, this isn’t an issue for you. In a cash basis accounting system, you don’t count money that you’re owed until it’s paid to you. You can still write off any expenses related to an unpaid invoice, but you do not owe taxes on any unpaid income. If you are a very large company this also is unlikely to be an issue for you. Large companies tend to use a reserve form of accounting and have a “bad debt reserve” to which they apply bad debts.
However, if you are neither a very large or very small company, you most likely file your taxes on an accrual basis. In accrual basis accounting, the unpaid invoice shows up as income on which you owe taxes. However, if you never collect that money, you can write off the amount as a bad debt expense.
As professional debt collection agents, Cobra Financial Solutions know full well that it’s hard to justify classifying a debt as “uncollectible” if the debt has been owed for less than 90 days.
But, we’re here to help. There are some warning signs that a debt may be uncollectible, even if it’s been less than 90 days, include a company declaring bankruptcy, a company refusing to answer communication, a company stating that they will not pay you, or a company simply disappearing.
Once you have turned a debt over to a collection agency such as Cobra Financial Solutions, you are also justified in writing it off on your taxes. However, if we are able to collect the money owed to you you’ll owe taxes on the amount collected.
As a commercial collection agency operating across the whole of the United Kingdom, Cobra Financial Solutions recommend that you don’t wait until tax season to think about how you will collect on unpaid invoices.
Our team of experienced and knowledgeable debt collection agents advise clients to consider professional help with unpaid invoices that are 90 days or more overdue, or when they start to notice any of the warning signs that a business may not be willing or able to pay its bills. This could be a matter of weeks- it really is never too early to engage the help of professional, persuasive and persistent debt collection agents.
Writing off bad debt is helpful to your bottom line, but what’s more helpful is actually collecting on that debt. If you hire a reputable collection agency such as Cobra Financial Solutions we can help to get back what is rightfully yours.
At Cobra Financial Solutions, our goal is to make sure you are paid the money you are owed, so that you write off as few uncollectible debts as possible. Get in touch today and find out how we can help your business recover any outstanding B2B (business to business) debts.