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BAD DEBTS
CALCULATE PROVISION FOR BAD DEBTS BASED ON TOTAL OUTSTANDING DEBT
  
The summarised information of an age analysis schedule or report can also be used to calculate or estimate for the provision of bad debts. You would use the list of the outstanding debt totals for each period and add an estimated percentage for the bad debts that is likely to be irrecoverable. These percentages are normally determined by the trends of bad debts written off in the past for the debt in each of these ageing periods.



In this example, the trend of bad debts is 1% for the current period, 2% for more than 30 days, 5% for more than 60 days and about 10% of outstanding debts will probably become irrecoverable. The provision for bad debts, according to this calculation would be R() 800.

 

This may differ from business to business and increased credit control and better debt collection could also bring these percentages down.