Recovery of small outstanding debts: management of the bottom of the portfolio

What is bottom-end portfolio management?

Most companies work on their balance sheet from top to bottom. However, managing small outstanding receivables often presents a problem due to the management costs and tax implications associated with writing off receivables.

Problems encountered in managing small unpaid debts

1. High management costs : Small uncollected receivables clutter accounting and increase administrative expenses.
2. A tax impact that should not be overlooked :
   • Writing off a receivable requires supporting documentation in accordance with Article 272 of the General Tax Code.
   • In the event of a tax audit, the company must prove that it has attempted to recover unpaid debts. Otherwise, the tax authorities may refuse to write off the debt as a loss and reinstate it in revenue.

Tax consequences of non-recovery of debts

1. VAT on uncollectible debts
   • Auditors and the tax authorities may require evidence of recovery actions.
   • Without proof of write-off, the tax authorities can claim reimbursement of VAT, even if the debt is definitively lost.
2. Impact on corporate income tax (CIT)
   • Writing off a receivable as a loss reduces taxable revenue and therefore the amount of corporate income tax.
   • During a tax audit, the absence of supporting documents may lead to the reintegration of these amounts into turnover, resulting in a tax adjustment.

How to optimize the management of the bottom of the portfolio?

Today, these receivables cost you 100% if they are not managed effectively.

Paris Contentieux International assists you in optimizing debt recovery by:

• Recovering the funds when possible.
• Providing a certificate of non-recovery, thus allowing a write-off in accordance with tax requirements.

By outsourcing the management of unpaid receivables, you secure your tax deduction for uncollectible receivables and reduce the cost of managing small receivables, while protecting your company from tax risks related to poor accounting treatment.