Bad Debt Write-Off Policy Template
Four documents and five sheets that compute the reserve from your own recovery history, and score when to stop chasing.
Free download · No account needed
A reserve set at a flat percentage of receivables is a guess with a number on it, and it is the first thing an auditor tests. Your own aging already holds the real answer. Of every dollar that sat in the 61 to 90 bucket at a month end, some share was never collected, and that share is measurable from history rather than assumed. This pack measures it per bucket, per year, net of everything that came back afterwards.
On the illustrative company in the sheets, three accounts with a dated event are reserved specifically for 60,060.00, and the roll rate on what is left produces 88,164.40. That is an allowance of 148,224.40 on receivables of 2,853,200.00, a blended 5.195 per cent. A flat 1.5 per cent would have given 42,798.00, which is 105,426.40 short of what this book's own history says it will lose. Blend by dollars, because the simple average of the six bucket rates reads 20.500 per cent and means nothing.
The other half is the single account. Four tests get scored before anything is written off: cost against the observed recovery rate for its band, documented contact attempts, a dated event, and age. Worthlessness turns on facts showing no reasonable expectation of repayment, and the Internal Revenue Code treats a partially worthless debt separately, limited to the part charged off in the year. Whether a balance is deductible belongs to your tax adviser. This space keeps the file, and the customer credit policy pack sets the limit that let the balance grow.
What's in the pack
Loss Rate Derivation sheet
Every bucket, every fiscal year: dollars observed, gross written off, recovered after write-off, net loss and rate to three decimals. This is the workpaper an auditor re-performs.
Doubtful Accounts Reserve sheet
Both layers on one page with the flat-percentage contrast underneath. Carries the two checks that have to run first: buckets summing to the aging total, and carved balances excluded before the roll rate.
Write-off Log
Eighteen months of write-offs with the reason, which of the four tests it met, the approver from the authority table, and a file note. Declines to write off get a row too.
Recovery Tracker
Twelve recoveries with how each one actually came back: a trustee distribution, an owner paying personally, an agency remittance with the gross and the fee shown separately.
Escalation Path sheet
Nine stages from five days before the due date to the write-off journal, each with an owner, a channel, and the trigger it sets in the reserve or the credit register. A balance written off also stops being a forecast receipt, which is where the thirteen week cash forecast pack picks it up.
Write-off Policy
The two layers, the four stop-chasing tests, the approval thresholds by amount, and the three things an auditor asks for. Written so it can be tested against the sheets.
Loss Rate Derivation
Why rates are weighted by dollars rather than by invoice, why a bucket observation needs closed history, why recoveries net against the numerator, and the four events that force a re-derivation.
Escalation Path
The nine stages with the day 60 call placed on the steepest step in the rate table. Also the four tests scored in full, with what evidence each one actually needs.
Allowance Rollforward
The four-movement identity with the provision as a plug, a quarterly split so a shorter period can be tested, and the two reconciliations that have to tie before any of it means anything.
How to use it
- 1
Take it blank, or seeded
Download the empty Word and CSV files with no signup, or open the pack in River and hand it your aging snapshots and write-off history instead.
- 2
Tie the population before anything else
Accounts receivable per the aging has to equal accounts receivable per the trial balance. A correct rate on the wrong population is still wrong, and the break is usually a credit memo used to clear a bad balance.
- 3
Derive the rates, then read them
One rate per bucket per year, weighted by dollars, net of recovery. Three readings that sit close together describe a population. Three that are far apart describe nothing, and the honest answer is the most recent year.
- 4
Carve out, then roll, then tie
Specifically identified accounts leave their buckets first. The roll rate runs on the remainder. Then the rollforward closes: opening, provision, write-offs, recoveries.
Frequently asked questions
Is this template free?
Yes. Four Word documents and five CSV sheets download with no signup and no card. Edit with AI is the optional path for anyone who would rather hand River three years of aging exports than build the derivation by hand. The rest of the template library works the same way.
What format are the downloaded files?
Four Word documents and five CSV sheets in one zip, opening in Word or Google Docs and Excel or Sheets. Open Loss Rate Derivation first: it holds dollars observed, gross written off and recovered per bucket per fiscal year, which is the workpaper an auditor asks to re-perform.
What if I do not have three years of aging history?
Then the rates cannot be derived and the honest interim answer is a specific-identification layer only, with the roll-rate layer left blank and the window stated on the face of the calculation. Use the shortest complete window you have rather than filling the gap with a benchmark.
Why is the simple average of the bucket rates wrong?
Because it weights each bucket equally when the balances are nothing like equal. On the worked book the current bucket holds 64.6 per cent of receivables and the 120-plus bucket holds 3.4 per cent, so averaging the six rates gives 20.500 per cent against a dollar-weighted 5.195 per cent.
Does this tell me when I can take the tax deduction?
No, and it should not. The accounting allowance and the tax deduction run on different tests and reach different answers in the same period. Whether a specific balance is worthless, and whether it is deductible in whole or in part, is work for your tax adviser. This pack keeps the file that question gets answered from.
How is this different from working the aging?
This one decides when to stop. The AR collections pack ranks and chases what is still worth chasing, and the escalation path here picks up where that ends: four scored tests, a named approver by amount, and a reserve that already carries the balance.
What does Edit with AI actually do?
A free River account is created and this pack installs as a private workspace. The agent starts ready for your aging snapshots and write-off history, ties the population to the trial balance, derives a rate per bucket per year, and computes both layers. It fills nothing until you send something.
Reserve on your own history
Download the blank pack as Word and CSV files, or open it in River and let the agent derive a loss rate per bucket from three years of your own aging.
Edit with AI