Write-Off Approval

A customer balance remains unpaid after collection attempts, and an employee proposes removing it from receivables. A write-off approval process asks whether the evidence supports the accounting treatment and whether the right person has authorised the entry.

Start with the item and reason, since a bad debt, damaged stock and obsolete equipment have different evidence and accounting requirements, and a generic 'write-off' button should not erase those distinctions. For a receivable under IFRS 9, the standard says to reduce the gross carrying amount when there is no reasonable expectation of recovering all or part of it.

That is an accounting assessment, not a discretionary opportunity to hide a slow payer, so document the basis. A write-off may follow earlier impairment or allowance recognition and need not create a new expense equal to the entire balance at approval, so finance should trace how the account and allowance were previously measured.

Inventory has different rules, as IAS 2 covers write-downs to net realisable value and recognising inventory losses, so an expired product's quantity, condition and recoverable value should be checked before choosing the entry. Set approval thresholds by amount, risk and role, since a small routine difference may be handled by a finance manager while a major customer balance may need a senior approver.

The threshold is a business policy choice, not a universal amount, and Oracle's PeopleSoft receivables documentation describes maximum write-off amounts and separate approval-needed limits, which illustrates the distinction between authority to enter a small adjustment and higher-level approval. Software settings should match the actual policy.

Keep the proposer and approver separate when practical, because someone who receives customer payments should not quietly write off balances and control the reconciliation as well, and small teams can use owner review and independent bank reconciliation as compensating checks. Supporting records might include the original invoice, ageing, collection notes, correspondence, legal advice, inventory count or disposal record, matched to the type of balance, because a checkbox without facts gives little assurance.

Check whether a customer disputes the invoice, since a billing error may need a credit note, not a bad-debt write-off, and an agreed discount or return also has its own accounting and approval route. Approval should be recorded before posting where the process permits, showing the amount, account, reason, supporting evidence, approver and date, and an emergency correction can be escalated promptly with its exception trail intact.

Avoid splitting a large proposed write-off into several small entries to fit below a threshold by looking at related transactions and cumulative amounts for the same customer or stock item, because a threshold should not be easy to game. Do not wait for managerial permission to consider an accounting loss, because if standards require impairment or a write-down at a reporting date, finance must assess it on time, and the approval process should support timely, correct reporting, not delay it indefinitely.

Writing off a debt for accounting purposes is not necessarily the same as waiving legal collection rights, so the business may later recover cash, subject to its policies and law, and should record a later recovery correctly rather than pretending the original write-off never happened. Review trends by branch, collector and customer segment, because a spike may reflect weaker credit decisions, a downturn, billing mistakes or poor collection follow-up, and the ratio alone cannot identify the cause.