Acting on the bad-debt flags your own review throws up

The signal

Preparing year-end accounts or reviewing a trial balance routinely surfaces debts that look doubtful: balances stranded in the oldest ageing column, invoices that have sat untouched for months, customers the client mentions are "a problem". The standard accounting response is to consider a provision — to recognise the likely loss in the numbers. That is correct, but it is only half the job. A doubtful-debt flag is also a prompt that real, possibly recoverable cash is sitting uncollected.

The review cycle is, in effect, a built-in early-warning checkpoint — one that lands on every client at least annually whether or not they have raised a concern.

What it means

A debt flagged as doubtful exists on a spectrum. At one end sits a genuinely impaired balance — the customer has failed or cannot pay, and a provision or write-down is the honest treatment. At the other sits a debt that is merely old and neglected: never properly chased, perhaps disputed over something minor, but from a customer who could pay if pursued. These two look similar in an aged report but call for completely different action.

Treating every doubtful flag as simply a provision quietly writes off recoverable money. The early-warning value of the review is in separating the two — and in acting on the recoverable ones promptly, because a flagged debt only deteriorates further the longer it is left after being identified.

Run the play (steps)

1. As doubtful debts surface during review, list them rather than only providing for them.
2. For each, establish whether the customer cannot pay or simply has not been pursued.
3. Provide for the genuinely impaired; mark the merely neglected for recovery.
4. Act on the recoverable flags promptly — review is the moment they have your attention.
5. Use each review cycle as a deliberate early-warning checkpoint for the debtor book.

What to say to the client

Separate provision from recovery explicitly: "At review I've flagged a few doubtful debts. Some we should provide for — but a couple look more like they were never properly chased. Those are recoverable, and the sooner we act the better."

For the recoverable ones, a no-cost debt appraisal tells the client which flagged balances are worth pursuing before they slip from doubtful into genuinely lost.

When to bring in Merion

The review itself is the natural trigger. Once you have separated the genuinely impaired debts from those that are merely old and neglected, the neglected ones are prime candidates for recovery — and acting at review, while they are fresh in view, preserves the most value. This is general professional information and not legal or financial advice.