Doubtful debt provision
An estimate set aside in your accounts for receivables that may not be paid, before any are written off.
What it means
A doubtful debt provision (or allowance for doubtful debts) is an estimate of how much of your receivables you may not collect. Rather than waiting to write off individual debts, you recognise the likely loss in advance so your reported profit and assets are not overstated.
The provision is an estimate based on your past experience and the age and quality of the accounts owed to you — not a write-off of any particular invoice.
Provision versus write-off
A provision is a forward-looking estimate; a bad debt write-off removes a specific debt once it is judged uncollectable. The tax treatment of provisions differs from write-offs, so check with the ATO or your accountant. Reviewing an ageing report and our free calculators can help you size a sensible provision.
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