Accounting for an irrecoverable receivable in 2026: procedure, entries and VAT

Updated 12 May 2026. Accounting for an irrecoverable receivable is not a routine year-end adjusting entry. For a customer loss to be tax-deductible in France, the General Tax Code (CGI) imposes three cumulative criteria at Article 39 1° 5°: the loss must be certain, precisely determinable and recovery must have been diligently attempted. Failing this, the tax administration rejects the deduction. At Cabinet Hayot Expertise in Paris, we regularly see SME CFOs and in-house accountants book a receivable as a final loss too early — with no bailiff certificate of insolvency, no court-filed claim — and lose both the corporate income tax deduction and the VAT recovery. This guide details the full procedure: qualification, collection, French GAAP entries, VAT recovery and a worked numerical example.

The first mistake is to confuse the two notions. A doubtful receivable is a receivable whose recovery has become uncertain but is still hoped for: the customer is going through a cash crunch, a commercial dispute is ongoing, a payment plan is under discussion. In accounting terms, the receivable is transferred from account 411 (Trade receivables) to account 416 (Doubtful or disputed customers), and an impairment is recognised in account 491 (Trade receivables impairment) for the net-of-VAT amount estimated as unrecoverable.

An irrecoverable receivable is a receivable for which the loss is definitive and certain. It is no longer recorded as impairment but as a final loss in account 654 (Losses on irrecoverable receivables), with simultaneous adjustment of output VAT in account 44571. This distinction is not academic: impairment is a reversible provisional charge, whereas a final loss removes the receivable from the balance sheet and triggers VAT recovery.

The move from one to the other requires enforceable evidence of irrecoverability: a bailiff's certificate of insolvency (procès-verbal de carence), a court judgment closing insolvency proceedings for insufficient assets, or an irrecoverability certificate from the court-appointed administrator. The timeline must respect the accounting principles of prudence and the cut-off of accounting periods.

Article 39 1° 5° of the French Tax Code subjects deductibility of a receivable loss to three cumulative criteria, restated in tax guidance BOI-BIC-CHG-40-20-10. The first criterion is the certain character of the loss: it must be demonstrated by an event external to the company, not by mere internal assessment. Admissible evidence includes a formal notice that remained unanswered, a bailiff's certificate of insolvency drawn up after an unsuccessful seizure attempt, a court judgment of liquidation closure for insufficient assets, or a certificate of irrecoverability issued by the court-appointed administrator in collective proceedings.

The second criterion is proven irrecoverability: recovery must have been diligently attempted. A company that sends no reminders, no formal notice, no mandate to a bailiff cannot invoke irrecoverability. The collection file must be documented: dated letters, return receipts, debt collection agency invoices, bailiff's certificate.

The third criterion is the precisely determinable amount: the loss must be individualised by customer, not aggregated. A blanket customer risk provision is not deductible. Each irrecoverable receivable must be recorded by a separate entry, with reference to the original invoice, customer number and exact amount.

No receivable loss can be recorded without evidence of a diligent collection procedure. The standard sequence, expected by the tax administration, follows six steps:

1. Staggered commercial reminders: email at D+5 after the due date, amicable reminder at D+15, simple letter at D+30. These reminders must be tracked in the CRM or accounting system.
2. Formal notice by registered letter with return receipt at D+45, citing late-payment interest (ECB rate + 10 points) and the fixed €40 recovery indemnity provided by Article D441-5 of the Commercial Code.
3. Amicable recovery entrusted to a debt collection agency or a bailiff, who issues a formal demand and attempts negotiation.
4. Judicial recovery: payment order (Articles R1424-1 et seq. of the Code of Civil Procedure) for undisputed claims, or summons on the merits before the commercial court for disputed claims.
5. Bailiff's certificate of insolvency drawn up after an unsuccessful seizure attempt — the cornerstone of the irrecoverability file.
6. Filing of the claim within 2 months of publication in the BODACC if the customer enters collective proceedings (Article L622-24 of the Commercial Code).

The statutory payment term between professionals is 60 days from invoice date, or 45 days end of month (Article L441-10 of the Commercial Code). The five-year limitation period of Article L110-4 of the Commercial Code runs from the due date: after 5 years without an interrupting act, the receivable is extinguished and can no longer be collected — which itself constitutes an automatic case of irrecoverability.

Initial impairment (doubtful receivable)#

When a receivable shifts from normal to doubtful status, two simultaneous entries are required. First, the accounting reclassification:

• Debit 416 (Doubtful or disputed customers) — for the gross amount including VAT
• Credit 411 (Trade receivables) — for the gross amount including VAT

Then, the impairment is recognised on a net-of-VAT basis:

• Debit 6817 (Impairment additions on current assets)
• Credit 491 (Trade receivables impairment) — for the net-of-VAT amount estimated as unrecoverable

Impairment is computed net of VAT because VAT has not yet been adjusted at this stage. The impairment rate reflects actual risk: 50% if a safeguard procedure is opened, 100% if liquidation is pronounced.

Recognition of the final loss (irrecoverable receivable)#

When the loss becomes certain and definitive (bailiff certificate, closure for insufficient assets), three simultaneous entries materialise the irrecoverability:

• Debit 654 (Losses on irrecoverable receivables) — net of VAT
• Debit 44571 (Output VAT to be adjusted) — for the VAT initially charged
• Credit 416 (Doubtful customers) or 411 (Trade receivables) — for the gross amount

Simultaneously, the previously recognised impairment is reversed:

• Debit 491 (Trade receivables impairment)
• Credit 7817 (Impairment reversals on current assets)

This reversal is essential: it avoids double accounting and tax charges. The reversal is taxable, but the final loss in account 654 is deductible, the net effect being neutral as long as amounts match.

Output VAT collected upon issuance of the original invoice can be recovered from the French Treasury once the receivable becomes definitively irrecoverable. Article 272 of the CGI subjects this recovery to several conditions, detailed in tax guidance BOI-TVA-DED-40-10-20.

The first condition is the issuance of a corrective invoice cancelling the original invoice. This invoice must explicitly state: the reason "corrective invoice for definitively irrecoverable receivable", the date and number of the original invoice, the net-of-VAT amount, the VAT, the gross amount, and the details of the defaulting customer. The double invoicing — original invoice plus corrective invoice — constitutes the supporting evidence enforceable against the tax administration in case of audit.

The second condition is the two-year recovery deadline from the irrecoverability trigger: date of the bailiff's certificate, date of the closure judgment for insufficient assets, or date of the administrator's irrecoverability certificate. After this 2-year period, VAT is definitively lost.

The third condition is demonstration of definitive irrecoverability in the tax sense — the same evidence as for corporate tax deductibility (bailiff certificate, closure for insufficient assets). A simply ageing receivable, even time-barred, is not sufficient without evidence of unsuccessful recovery efforts.

Recovery is processed on the CA3 VAT return of the month or quarter following the corrective invoice, line 25 (omissions or additional deductions).

A waiver of receivable differs from irrecoverability by its voluntary nature. The company chooses not to collect a receivable it could theoretically have recovered. Deductibility depends on the classification.

A commercial waiver of receivable (Article 39 1° 13° of the CGI) is deductible if justified by the company's own business interest: preserving a strategic commercial relationship, brand image, commercial consideration. Evidence rests on demonstrating a direct economic interest, documented for example by a framework contract, a commercial letter or board minutes.

A financial waiver of receivable (typical of parent-subsidiary relationships) is not deductible under Article 39 13 of the CGI, except where the beneficiary subsidiary is in collective proceedings. In that case, deductibility is capped at the negative net position of the subsidiary, plus the amounts needed to bring it back to zero. This rule prevents a parent from artificially converting equity contributions into deductible charges.

Operational difference with irrecoverability: a waiver is a voluntary act and requires a documented management decision (board minutes, written exchange with the customer), whereas irrecoverability is a state of facts imposed on the company.

Where the customer enters safeguard, judicial reorganisation or liquidation proceedings, filing the claim with the court-appointed administrator becomes the foundational legal act. Article L622-24 of the Commercial Code imposes a deadline of 2 months from publication of the opening judgment in the BODACC to file the claim. For creditors domiciled outside metropolitan France, this deadline is extended to 4 months.

The claim must be sent to the court-appointed administrator, by registered letter with return receipt or via the dedicated creditors-services.fr portal. It states the principal amount, any interest, the nature of the claim (privileged, unsecured, secured), the legal basis (contract, unpaid invoice) and the supporting documents (invoices, purchase orders, formal notices).

Failing timely filing, the claim is time-barred — that is, it cannot be admitted to the liabilities and is extinguished. A relief from forfeiture may be requested from the supervising judge under strict conditions (Article L622-26 of the Commercial Code), but this route is uncertain. To anticipate such situations, see our guide How to check whether a company is in judicial reorganisation.

Consider a Paris-based B2B services SME (revenue €3.5M, corporate income tax at the standard 25% rate). On 15 December 2025, it issues an invoice of €24,000 including VAT (€20,000 net of VAT + €4,000 VAT at 20%) to an industrial customer. Due 60 days later, on 13 February 2026. The customer does not pay despite email reminders (D+5 and D+15) and a formal notice by registered letter (D+45, late March 2026). In April 2026, the SME mandates a bailiff who draws up a certificate of insolvency on 20 April. On 5 May 2026, the customer enters judicial liquidation (BODACC publication of 6 May 2026).

Accounting steps as of 12 May 2026:

1. Claim filed on 7 May (within the 2-month deadline) with the court-appointed administrator, for €24,000 including VAT.
2. Accounting reclassification: Debit 416 / Credit 411 for €24,000.
3. 100% impairment (liquidation pronounced): Debit 6817 / Credit 491 for €20,000 net of VAT.
4. Upon closure for insufficient assets (estimated mid-2027): Debit 654 (€20,000) + Debit 44571 (€4,000) / Credit 416 (€24,000). Reversal: Debit 491 / Credit 7817 for €20,000.
5. Corrective invoice issued, VAT recovered on the July 2027 CA3 return.

Net tax impact: the €20,000 net-of-VAT loss is corporate-tax deductible (saving of 20,000 × 25% = €5,000); the €4,000 output VAT is recovered. Real net cost to the company: 24,000 − 5,000 − 4,000 = €15,000, against €24,000 had the procedure not been correctly followed.

Better to prevent than to record. Several mechanisms reduce the risk of irrecoverability. Customer credit scoring relies on paid databases (Coface, Allianz Trade, Atradius) or free ones (FIBEN Banque de France for rated customers). Credit insurance covers 70 to 90% of the loss upon default, against a premium of 0.15 to 0.40% of insured turnover. The documentary letter of credit secures export transactions, and the customer deposit (30% on order, for example) reduces exposure. Factoring transfers risk to a factor against 0.5 to 2% of the assigned amount. Finally, strict standard terms and conditions (retention of title clause, late-payment interest, €40 fixed indemnity, French applicable law) strengthen the litigation position.

Outsourcing customer follow-up can also be integrated into a broader engagement — for example combined with payroll outsourcing to pool administrative workflows.

In the files we handle in Paris, three errors recur systematically. The first is to record the loss without proof of irrecoverability: a director in a hurry wants to "clean up" the balance sheet before year-end and books receivables in account 654 without a bailiff certificate — the tax administration rejects the deduction at the next audit. The second is to overlook the VAT adjustment: the loss is recorded net of VAT only, without debiting account 44571 nor issuing a corrective invoice, and VAT remains permanently borne by the company after the 2-year window. The third is to miss the claim-filing deadline: liquidation is published in the BODACC, but the accounting team does not monitor BODACC and 2 months later the claim is time-barred.

Our method: a quarterly dashboard of receivables over 60 days, a monthly review of BODACC publications for sensitive customers, and a standardised collection file (reminder templates, formal notices, bailiff mandates). For complex arbitrages — commercial waiver, subsidiary's negative net position, choice between 50% impairment and final loss — we work alongside finance teams via our outsourced CFO service for startups and SMEs in Paris or directly through our Paris 8 accounting and audit team.