Bad Debt Accounting in France 2026: Provisions, Write-Offs and VAT Recovery

Up to date as of 15 May 2026.

An unpaid invoice ageing past 90 days, then a letter from the court-appointed liquidator confirming your client has been placed into compulsory liquidation. This is a scenario that regularly confronts SME directors, contractors, subcontractors and service providers in France. The immediate questions are practical: how do you record this in the accounts? Can you deduct the loss from corporate tax? And can you recover the VAT you already remitted to the French tax authority?

The accounting and tax treatment of bad debts in France is governed by precise rules: Plan Comptable Général (PCG) articles 322-1 and 322-2, the Code Général des Impôts (CGI) articles 39-1-5°, 271 and 272, and the Code de commerce article L123-22. Applied incorrectly, these rules expose the business to a tax reassessment, or to the permanent loss of a material cash benefit — the VAT that was collected, remitted, and could have been recovered.

This article covers the entire treatment, from the first sign of doubt about a receivable to the definitive write-off, including a worked numerical example.

This article is for information purposes only. Your specific situation — ongoing insolvency proceedings, aged receivables, tax audit — warrants individual review with your expert-comptable.

The terminology is precise and the accounting and tax consequences differ materially.

A doubtful debt is a receivable whose collection is uncertain: the risk is identified but the loss is not yet definitive. The accounting response is an impairment provision (account 491), charged through account 681 (operating provision charge). This provision is deductible from IS if the conditions of CGI article 39-1-5° are met.

An irrecoverable debt is a receivable where the loss is definitively established: the counterparty will not pay, and irrecoverability is evidenced by an official document. The accounting response is the definitive write-off (account 654), accompanied by the reversal of the prior provision and the recovery of the VAT previously collected (CGI article 272).

The boundary between the two is not always sharp in day-to-day business, but it is structurally important for both IS and VAT declarations.

The PCG does not specify a fixed overdue threshold, but professional practice and tax doctrine consistently identify the following indicators at the year-end closing date:

• Payment overdue by more than 90 days with no agreed payment schedule
• Insolvency proceedings opened (sauvegarde, redressement judiciaire, liquidation judiciaire) published in the BODACC (official French insolvency gazette)
• Disputed invoice: the client has contested the invoice in writing, or legal proceedings are underway
• Demonstrated default: collection letters (ordinary mail, registered post with acknowledgement, formal mise en demeure) have gone unanswered; a bailiff (huissier de justice) has confirmed absence of seizable assets

When one or more indicators are present at the closing date, the impairment must be recognised. Waiting until the debt becomes definitively irrecoverable before recording anything is an error — it costs the company a deductible charge for the relevant year.

Balance-sheet reclassification#

The receivable moves from account 411 Clients to account 416 Clients douteux ou litigieux (Doubtful or Disputed Debtors). PCG article 322-1 requires this reclassification to faithfully represent the balance-sheet position. The reclassification is made at the gross VAT-inclusive amount (the VAT element remains attached to the receivable until it exits the balance sheet definitively).

416  Doubtful debtors         12,000
     411  Clients                        12,000

Provision for impairment (dotation)#

The provision is calculated on the net-of-VAT (HT) amount only. VAT is not a company charge — it is a flow collected on behalf of the State. Provisioning the VAT-inclusive amount is one of the most common errors in practice, inflating the deductible charge by 20%.

681  Dotations aux provisions (operating charges)   10,000
     491  Impairment — client accounts                         10,000

Supporting documents required at this stage:

• Copy of the unpaid invoice(s)
• Complete collection trail (dates, method of dispatch, responses or non-responses)
• Formal notice (mise en demeure) with acknowledgement of receipt
• BODACC extract if insolvency proceedings have been opened
• Bailiff's report (PV de constat) if applicable

At every year-end closing, the provision must be reassessed under PCG article 322-2:

• Maintained if the risk level is unchanged or has worsened
• Increased if the situation has deteriorated (recovery plan rejected, judicial liquidation ordered)
• Partially reversed if a partial payment has been received or the debtor's position has improved

A provision recognised in year N and never reviewed until year N+5 signals to a tax inspector that no file management diligence was applied. In long procedures (a 10-year sauvegarde plan, for example), the annual review is particularly important.

If the client unexpectedly settles all or part of the debt:

491  Impairment — client accounts         10,000
     781  Reversals of provisions (operating income)   10,000

The reversal is taxable income for IS purposes. Account 411 (or 512 if cash is received directly) is credited with the gross VAT-inclusive amount collected. No additional VAT recovery applies in this scenario — the VAT was already collected and declared.

When irrecoverability is certain and evidenced, the receivable is removed from the balance sheet as a definitive loss.

Cumulative conditions (CGI article 272 and BOFiP guidance BOI-BIC-PROV-20-10)#

Definitive irrecoverability must be established by one of the following documents:

• PV de clôture de liquidation judiciaire pour insuffisance d'actif — the court's closing order confirming asset insufficiency (the strongest documentary evidence, directly opposable to the tax authority)
• Certificate of irrecoverability issued by a huissier de justice (confirming absence of seizable assets following enforcement attempts)
• Final court order declaring the debt unrecoverable
• Documented abandonment of collection following demonstrated and characterised failed attempts

A mere decision to stop sending reminders, without a supporting document, is not sufficient. The DGFiP cross-references the FEC (Fichier des Écritures Comptables) with BODACC data and bailiff records.

Write-off journal entries#

Definitive loss (HT amount):

654  Pertes sur créances irrécouvrables   10,000
     416  Doubtful debtors                         10,000

VAT recovery:

44570  VAT collected — bad debts   2,000
       416  Doubtful debtors              2,000

Reversal of now-redundant provision:

491  Impairment — client accounts         10,000
     781  Reversals of provisions (operating income)   10,000

Recovering VAT previously remitted is a right, not an option — but it is subject to strict conditions and specific formalities.

Accepted documentary evidence#

• Court closing order (PV de clôture LJ) for asset insufficiency
• Certificate of irrecoverability from a huissier de justice
• Final court judgment

Recovery is made by deducting the VAT amount on the next VAT return (CA3 or CA12) in the bad-debt VAT recovery line. The amount is the VAT shown on the original unpaid invoice.

Recovery deadline#

The window for rectifying the VAT return is in principle 12 months from the triggering event (to be confirmed against the rules applicable at the date of the transaction). Beyond this period, the administration may refuse the claim.

Obligation to notify the debtor#

When you recover VAT, you are required to notify your debtor by any means, so that they can regularise their own VAT deduction (CGI article 272, paragraph 2). This step is frequently overlooked.

For both the provision charge (account 681) and the definitive write-off (account 654) to be deductible from IS, four conditions must be met simultaneously:

1. The loss is probable, not merely possible — the risk must be individualised and documented
2. The amount is precisely quantified — a blanket provision not broken down receivable by receivable is disallowed
3. The loss arises from events in progress at the closing date — events occurring after year-end cannot be backdated
4. Supporting documents are available and retained — without probative evidence, reassessment is virtually automatic

A provision created solely because payment is overdue, with no collection trail, will be reclassified as a non-deductible charge on audit, with late-payment interest running from the year of provision.

Facts: Invoice dated 1 March Year N, EUR 12,000 gross (EUR 10,000 HT + EUR 2,000 VAT at 20%). The client is placed into judicial liquidation on 15 September Year N. The court's closing order confirming asset insufficiency is received on 10 January Year N+1.

Year N — Closing at 31 December N#

From the opening of the LJ in September N, the risk is characterised. A provision is recognised on the HT amount.

The EUR 10,000 charge is deductible from IS in Year N.

Year N+1 — After Receipt of the Court Closing Order (January N+1)#

Irrecoverability is now certain. The definitive write-off is recorded, VAT is recovered, and the provision is reversed.

Definitive write-off:

VAT recovery:

Provision reversal:

Year N+1 cash impact: EUR 2,000 gain via VAT refund. IS impact: neutral (charge 654 = EUR 10,000 offset by income 781 = EUR 10,000).

In the SME and mid-market files we manage at Hayot Expertise in Paris, bad-debt problems cluster around three recurring points.

First: the VAT-inclusive provision. This is the most common error. The gross invoice amount is used to calculate the provision. The result is a charge inflated by 20% and exposure to a tax reassessment on the VAT portion that should never have been provisioned.

Second: the overlooked VAT recovery. Once the judicial liquidation is closed, VAT recovery is frequently not actioned — through unfamiliarity with the mechanism, or because the file is closed once the loss is booked. This is a direct cash loss, often material on receivables of several tens of thousands of euros.

Third: insufficient documentation. A provision not supported by a traced collection trail, a formal notice, a BODACC extract, or a bailiff's report does not survive a tax audit. The temptation to create a comfort provision on receivables that are merely overdue is a risk not worth taking.

Many directors believe they can recover VAT on a bad debt "when they get around to it." The recovery window is limited — in principle 12 months from the triggering event (to be confirmed). Beyond this, the administration can refuse the correction. A rigorous process for tracking disputed receivables — with an alert triggered on receipt of the court closing order — is essential to preserve this right.

LPF article L102 B requires retention of accounting and tax documents for 6 years. For bad debts, documents to retain include:

• Original invoice and purchase order or contract
• Complete collection trail (dates, methods, responses or non-responses)
• Formal notice (mise en demeure) with acknowledgement of receipt
• BODACC extract (insolvency proceedings opening)
• Creditor claim filed in the insolvency proceedings (if filed)
• Court closing order or bailiff's certificate of irrecoverability
• Correspondence with the court-appointed administrator or liquidator

These documents are the foundation for both IS deductibility and VAT recovery. In a tax audit, their absence renders both advantages unenforceable.

The DGFiP has effective cross-referencing tools:

• FEC (Fichier des Écritures Comptables): accounts 416, 491, and 654 are priority targets in audits — a provision with no annual review movement is a red flag
• BODACC: insolvency proceedings are public record with precise dates — a provision predating the published opening of proceedings may be questioned if no other indicator is documented
• Bailiff registers: PV records and irrecoverability certificates are traceable

A provision with no correlation to a documented, publicly recorded objective event is an audit red flag. Reassessment risk is real and late-payment interest runs from the year of provision.

• The insolvency law reform (Law of 18 October 2021 transposing the EU Restructuring Directive) strengthened conciliation and sauvegarde procedures — receivables in an approved sauvegarde plan are not irrecoverable and must not be written off to account 654 while the plan is running
• Mandatory e-invoicing (progressive rollout — timetable to be confirmed against texts in force in 2026) increases traceability of invoices and payments, making provision omissions more visible in the FEC during audits
• DSO (Days Sales Outstanding) alert thresholds above 90 days should be a standard dashboard indicator for any DAF or expert-comptable accompanying an SME

• Reclassify the receivable from account 411 to account 416 as soon as doubt is identified
• Calculate the provision on the net-of-VAT (HT) amount only
• Build the complete supporting file (collection letters, formal notice with AR, BODACC extract)
• Document the provision in the notes to the annual accounts
• Review the provision at every year-end closing (maintain, increase, or reduce)
• On receipt of the court closing order or bailiff's certificate: record account 654 write-off and recover VAT via account 44570
• Rectify the VAT return within the applicable deadline (12 months in principle — to be confirmed)
• Notify the debtor of the VAT recovery performed
• Retain all documents for 6 years (LPF article L102 B)

Bad debt accounting is one of the rare areas where a procedural error simultaneously generates a fiscal overcharge (non-deductible provision), a cash loss (unrecovered VAT), and audit exposure (provision without documentary evidence). All three consequences frequently occur in the same file.

At Hayot Expertise in Paris, we integrate doubtful receivables monitoring into the quarterly accounting review: reclassification, HT calculation, supporting file assembly, and BODACC alerts for insolvency proceedings affecting clients. If you have receivables currently in dispute or customers in insolvency proceedings, contact our firm for a review of your specific situation.

Sources: Légifrance (PCG art. 322-1 and 322-2, CGI art. 39-1-5°, 271 and 272, LPF art. L102 B, Code de commerce art. L123-22), BOFiP BOI-BIC-PROV-20-10. This article is current as of 15 May 2026. It does not constitute personalised legal or tax advice.