The law firm’s involvement in the writing-off process

We distinguish between two types of bad debts, each of which has a different write-off procedure:

Bad debt due to a very low probability of collecting the debt.

Examples include bankruptcies, companies in liquidation, debtors not found, low amounts without a claim, debtors leaving the country or incarcerated, and economic reasons.

After all legal procedures and options have been exhausted, the lawyer will recommend writing off the debt. The lawyer will send a file detailing the debts of the clients considered to be written off, along with a letter of recommendation for each client to register for bad debts. In the letter, the lawyer will detail the reason for considering the debt as a bad debt and will attach relevant references such as an investigator’s report.

Structured procedure for Implementing Bad Debt Write-Offs

1. Identification and Assessment:
   1. Review each debt case to identify those that fall under categories such as bankruptcy, liquidation, missing debtor, low-value debts without claims, debtor incarceration, or economic unviability.
   1. Perform a thorough assessment of each case, including the history of recovery attempts and any external factors affecting recoverability.
2. Legal Procedures and Exhaustion:
   1. Ensure that all possible legal avenues and recovery procedures have been pursued. This may include court proceedings, negotiations, and use of debt collection agencies.
   1. Document each step taken in the recovery process, providing clear evidence that all reasonable efforts have been made.
3. Lawyer’s Recommendation for Write-Off:
   1. Upon concluding that a debt is unlikely to be recovered, the assigned lawyer drafts a recommendation for the write-off.
   1. The recommendation should detail why the debt is considered irrecoverable, supported by relevant documentation such as investigator reports or court rulings.
4. Preparation of Write-Off File:
   1. Compile a comprehensive file for each debt being recommended for write-off. This file should include the debt details, history of recovery efforts, lawyer’s recommendation letter, and any supporting documents.
   1. Ensure that all data within the file is accurate and up-to-date.
5. Submission to Collection Department:
   1. Submit the write-off files along with the recommendation letters to the organization’s collection department or the relevant decision-making body.
   1. Include a summary report highlighting key details of each case for a quick overview.
6. Approval Process:
   1. The collection department reviews each file and recommendation.
   1. They may request additional information or clarification before making a decision.
   1. Once reviewed, the department approves or rejects the write-off recommendations.
7. Recording and Adjusting Financial Records:
   1. Upon approval, update the financial records to reflect the write-off of bad debts.
   1. Adjust the accounting ledgers and financial statements accordingly to represent the organization’s financial position accurately.
8. Notification and Documentation:
   1. Notify all relevant departments of the approved write-offs, ensuring that no further recovery actions are taken on these accounts.
   1. Document the entire process in a final report, storing all related files and communications for future reference and audit purposes.
9. Regular Review and Audit:
   1. Implement a periodic review process to assess the effectiveness of the bad debt write-off procedure.
   1. Conduct audits to ensure compliance with legal and accounting standards.

By following these steps, the organization can effectively manage and write off bad debts, ensuring financial accuracy and compliance with legal and accounting standards. This structured approach also helps maintain a clear record of all actions taken, which is crucial for internal audits and future financial planning.

Bad debt following a court decision.

These are mediation settlements that have received the validity of a judgment, judgments not in favour of the organization (fully or partially) and discharged debts.

As in the earlier case, the lawyer will recommend the cancellation of the debts together with the references of the judgments. That said, there is no need for a detailed document as the court’s decision justifies the write-off. The process in the organization is similar to the first case.