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

Bad debt write-off in France: the short answer. A loss on an irrecoverable receivable is recorded once recovery has definitively failed. It is booked to the debit of account 654 Pertes sur créances irrécouvrables, against the credit of account 416 Clients douteux ou litigieux, for the net-of-VAT amount. The output VAT is recovered separately, on documentary evidence, and from the date of the judgment ordering the compulsory liquidation (CGI, art. 272).

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: the Plan Comptable Général (règlement ANC 2014-03: articles 214-5 and 214-15 on impairment, articles 1214-41, 1214-49 and 1221-65 on accounts 416, 491 and 654), 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 table above sets out the steps. This one answers the question actually asked in a live file: I have just learned of this event, what do I post, with which document, and can I recover the VAT?

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 same mechanism applies to other balance sheet items: inventory that has become obsolete or unsellable also calls for an impairment charge, with its own valuation criteria and its own deductibility discussion. That case is covered in our article on inventory impairment and its deductibility.

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. The Plan Comptable Général (article 214-15) requires the entity to assess, at each closing of the accounts, whether there is an indication that an asset may have lost value, and to run an impairment test where such an indication exists:

• 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.

What proves definitive irrecoverability (CGI article 272 and BOFiP BOI-TVA-DED-40-10-20)#

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.

Insolvent client outside insolvency proceedings: what to do#

This is the most common case, and the most poorly handled. An insolvent client who is in neither sauvegarde, nor redressement, nor liquidation does not prevent you from recording the loss: what matters is evidence that recovery action has failed. The BOFiP (BOI-TVA-DED-40-10-20) accepts, as a practical rule, that VAT may be recovered where the creditor establishes that the debtor has disappeared without leaving an address. Payment of an indemnity by a credit insurer likewise evidences the irrecoverable nature of the receivable.

For an insolvent client outside insolvency proceedings, the sequence is therefore: formal notice by registered letter left unanswered, attempted enforcement through a commissaire de justice, then a certificate of irrecoverability or a procès-verbal de carence. It is this evidence file that makes the loss enforceable against the tax authority: how to build it, document by document, is set out in our article on the evidence required and VAT recovery on a bad debt.

Certificate of irrecoverability: who issues it and when#

No French text imposes a standard "certificate of irrecoverability", and the tax authority does not make it a formal condition: it reasons in terms of factual situations. "Proof of irrecoverability results from the finding that the proceedings brought by a creditor against its debtor have failed" (BOI-TVA-DED-40-10-20, § 40). Two documents play that role in practice, and they are not obtained at the same pace.

The liquidator's statement, which the tax guidance still calls the certificat du syndic. The decisive operational point is that you must not wait for it: the tax may be recovered "from the date of the judgment ordering the compulsory liquidation of the defaulting business, without any need to wait for the certificat du syndic or for the closing judgment" (BOI-TVA-DED-40-10-20, § 50), which is also what paragraph 1 of article 272 of the CGI provides. The statement keeps an accounting use: it dates the write-off in account 654 where the liquidation takes several years to close.

The procès-verbal de carence issued by a commissaire de justice, outside insolvency proceedings. It is drawn up "if no asset can be seized", or if manifestly no asset has any market value (code des procédures civiles d'exécution, art. R221-14). Its prerequisite is regularly overlooked: enforcement requires an "enforceable title evidencing a liquid and due claim" (same code, art. L111-2). You therefore do not order a procès-verbal de carence the way you request a statement: you first need a payment order or a judgment, then an unsuccessful enforcement attempt. That path takes months, not days. It is anticipated when the receivable moves to account 416, not three weeks before the accounts are closed.

The provision trap. An impairment, even booked at 100%, is never proof of irrecoverability: "recognising a provision for impairment of the receivable cannot have the effect of allowing the tax to be set off" (BOI-TVA-DED-40-10-20, § 40). As long as the entry remains 681 / 491, the VAT stays with the Treasury. The guidance adds that recovery is not tied to the bookkeeping of the transaction, but that it normally corresponds to the point at which the business is entitled to record its receivable in a definitive expense account, meaning account 654.

Trade-off on small receivables. A payment order followed by an enforcement attempt often costs more than a receivable of a few hundred euros. The right answer is not to give up on the entry, but to document the failure differently: as a practical rule, the tax guidance accepts recovery where the creditor establishes that its debtor has disappeared without leaving an address, and a payout by a credit insurer likewise evidences the irrecoverable nature of the receivable (§ 40). An internal memo written by the business itself, on the other hand, proves nothing.

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.

You do not have to wait for the liquidation to close#

This is the point that costs the most cash. The second paragraph of CGI article 272-1 provides that the VAT may be credited or refunded from the date of the court decision ordering the compulsory liquidation. The liquidation judgment is therefore enough: there is no need to wait for the court closing order for asset insufficiency, which often comes two to four years later.

Do not confuse the two timelines. VAT is recoverable from the liquidation judgment. The definitive accounting loss in account 654 requires irrecoverability to be established. The two entries do not necessarily fall in the same financial year.

The mandatory wording on the duplicate invoice#

The rectification required by CGI article 272 is not merely a matter of notifying the client. The BOFiP (BOI-TVA-DED-40-10-20, § 110) requires a duplicate of the original invoice to be sent, overprinted with the wording:

Facture demeurée impayée pour la somme de ...... euros (prix net) et pour la somme de ...... euros (TVA correspondante) qui ne peut faire l'objet d'une déduction (CGI, art. 272).

Where unpaid invoices are numerous, the tax authority accepts a summary schedule listing, invoice by invoice, the net amount and the corresponding VAT. Without this formality, the credit is refused even where irrecoverability is fully established.

In chart-of-accounts terms, the VAT so recovered is taken to the debit of account 4457 "Taxes sur le chiffre d'affaires collectées": the sub-account 44570 used above is a practical subdivision found in company charts of accounts, not a PCG account.

Recovery deadline#

Contrary to a persistent misconception, it is not 12 months. The BOFiP (BOI-TVA-DED-40-10-20, § 130) accepts that the supplier may credit the output VAT until 31 December of the second year following the year in which the court decision was handed down. A compulsory liquidation ordered in March 2026 therefore leaves a right of credit until 31 December 2028. After that date, the recovery is permanently lost.

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 compulsory liquidation is ordered, 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 closes on 31 December of the second year following the year of the court decision (BOI-TVA-DED-40-10-20, § 130). 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.

CGI article 272, the backbone of VAT recovery on bad debts, is repealed with effect from 1 September 2026 by ordonnance no. 2025-1247 of 17 December 2025. VAT is recodified in Book II of the legislative part of the code des impositions sur les biens et services (CIBS), whose annex covers articles L200-1 to L246-12.

The recodification is made at constant law: no substantive rule changes on the recovery of VAT on an irrecoverable receivable. Three practical points:

• References to the repealed CGI provisions on VAT are to be read as references to the CIBS provisions that reproduce them (ordonnance 2025-1247, art. 46, I, 1°).
• The wording "CGI, art. 272" on the duplicate invoice remains valid after 1 September 2026: article 46, II of the same ordonnance provides that such acts remain valid where they produce effects until 31 December 2027.
• Existing BOFiP guidance remains enforceable against the tax authority until it is restated in the CIBS framework.

The number of the CIBS article reproducing CGI article 272 is not yet available in the consolidated versions published to date, so we do not cite it until it can be verified in an official source. In practice, keep referring to CGI article 272 until 31 December 2027.

Many internal charts of accounts still use account 6714 "Créances devenues irrécouvrables dans l'exercice". That account was removed by règlement ANC no. 2022-06, applicable to financial years beginning on or after 1 January 2025: it is absent from the Plan Comptable Général as consolidated at 1 January 2026.

Losses on irrecoverable receivables that are habitual in nature, having regard in particular to the nature of the activity or the volume of business transacted, are recorded to the debit of account 654 "Pertes sur créances irrécouvrables" (PCG, art. 1221-65). A loss directly linked to a major and unusual event belongs instead to the exceptional result (PCG, art. 513-5), hence account 678.

If your software still offers 6714, have the setup corrected before the next closing: a charge posted to a deleted account ends up misallocated in the tax return.

• 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)
• Once irrecoverability is established (court closing order, certificate from the commissaire de justice): post the loss to account 654
• Recover the VAT from the liquidation judgment, without waiting for the court closing order for asset insufficiency
• Send the duplicate invoice bearing the regulatory wording (BOI-TVA-DED-40-10-20, § 110)
• Credit the VAT no later than 31 December of the second year following the court decision
• 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: Plan Comptable Général (règlement ANC 2014-03 consolidated at 1 January 2026, art. 214-5, 214-15, 513-5, 1214-41, 1214-49 and 1221-65; règlement ANC 2022-06), Légifrance (CGI art. 39-1-5°, 271 and 272, LPF art. L102 B, Code de commerce art. L123-22, ordonnance no. 2025-1247 of 17 December 2025), BOFiP BOI-BIC-PROV-40-20 and BOI-TVA-DED-40-10-20. This article does not constitute personalised legal or tax advice.