Bad debt: evidence, VAT and accounting

Updated April 2026 - An unpaid invoice is not automatically a definitive bad debt. Between a simple payment delay, a doubtful receivable, an impairment provision and a confirmed final loss, the accounting and tax consequences are very différent. In 2026, the subject remains sensitive because it determines both the deductibility of the loss, the possible VAT recovery and the strength of your evidence file in the event of a tax audit.

Quick answer: a receivable becomes irrecoverable when non-payment is sufficiently certain and well documented. Before that point, it usually remains a doubtful receivable with a provision or a chase-up process.

A receivable is treated as irrecoverable when the failure to collect it has a definitive or sufficiently established character. This is not the same as:

• an invoice that is simply overdue;
• a file that is in the chase-up process;
• a doubtful receivable that may still be partially recovered.

The qualification depends on the facts: liquidation of the customer, closure for insufficient assets, failed enforcement, or a manifest absence of any realistic prospect of settlement.

The practical rule is simple: the larger the loss, the more robust the evidence file must be. Useful supporting documents include:

• invoices and payment terms agreed with the customer;
• formal reminders, formal notices and written exchanges;
• legal proceedings or documented recovery attempts;
• court judgments, liquidation orders or a formal certificate of unrecoverability where available;
• an internal decision note and the accounting justification.

Hayot Expertise tip: without a proper evidence file, a bad debt claim is often little more than an assertion. In a tax audit, the documentation is what makes the difference — not the intention.

Yes, but only under certain conditions. The French Tax Code (CGI) and administrative guidance allow the correction of VAT that was originally remitted on an invoice that ultimately will not be collected.

In practice, you need to verify:

• that the loss has a sufficiently certain character;
• that the corrective invoice or required notation is correctly established;
• that the correction is reported on the right VAT return.

If you manage multiple VAT régimes, connect this topic to our guides on VAT returns, VAT for SMEs and the VAT exemption threshold régime.

The accounting method depends on the stage of the file.

Before the loss becomes definitive#

You may be dealing with a doubtful receivable and, depending on the circumstances, a provision for impairment — which is the correct accounting treatment at that stage.

When the loss becomes definitive#

The receivable can be removed from the books and the corresponding loss recognised, in accordance with the French Chart of Accounts (PCG) and the fiscal documentation requirements.

The key is to distinguish clearly between:

• the reclassification entry at the doubtful stage;
• the impairment provision where applicable;
• the definitive write-off;
• the VAT correction where it is permitted.

The right process is not to jump straight from reminder to write-off. A receivable should evolve through clear stages. The more disciplined the escalation, the easier it is to defend the accounting and tax treatment later.

A useful séquence is:

• overdue invoice and first chase-up;
• formal notice and final deadline;
• review of the customer's solvency and payment history;
• possible impairment provision if recovery remains uncertain;
• final write-off only once the loss becomes sufficiently certain.

This matters because an invoice can be hard to collect without yet meeting the threshold of irrecoverability. That distinction is central to both the bookkeeping and the VAT correction.

The goal is not to be bureaucratic. It is to avoid the two most common mistakes: writing off too early or waiting so long that the file is no longer cleanly documented.

Bad debt is a cash-flow problem before it becomes an accounting problem. Every unpaid invoice ties up working capital that could have funded payroll, supplier bills, rent or investment. The more the business grows, the more important it is to track outstanding balances by ageing bucket.

A monthly receivables review is often enough to reveal which customers need stronger follow-up, which contracts should require prepayment, and which balances are not worth chasing endlessly.

The receivables process is stronger when the commercial team and accounting team share the same playbook. Sales should know when a customer should be put on hold. Accounting should know when a file becomes provisionable. Management should know when the case is no longer a collection issue but a loss issue.

In practice, this means:

• invoices sent on time and with the correct terms;
• payment delays escalated quickly;
• all reminders archived in one place;
• final decisions validated before closing the period.

This discipline is often what separates a file that is defensible from one that is merely plausible.

• writing off an invoice without sufficient evidence to support the decision;
• recovering VAT too early, before the loss is sufficiently established;
• confusing a doubtful receivable with an irrecoverable one;
• failing to document the collection efforts made.

We recommend formalising a standard internal workflow:

1. formal reminder and notice to the customer; 2. assessment and classification of the risk level; 3. decision on impairment provision; 4. qualification of irrecoverability when conditions are met; 5. VAT treatment and accounting entry.

This discipline avoids case-by-case improvisation and makes your year-end closings much more defensible.

The right process is not to jump straight from reminder to write-off. A receivable should evolve through clear stages. The more disciplined the escalation, the easier it is to defend the accounting and tax treatment later.

A useful séquence is:

• overdue invoice and first chase-up;
• formal notice and final deadline;
• review of the customer's solvency and payment history;
• possible impairment provision if recovery remains uncertain;
• final write-off only once the loss becomes sufficiently certain.

This matters because an invoice can be hard to collect without yet meeting the threshold of irrecoverability. That distinction is central to both bookkeeping and the VAT correction.

The goal is not to be bureaucratic. It is to avoid the two most common mistakes: writing off too early or waiting so long that the file is no longer cleanly documented.

Bad debt is a cash-flow problem before it becomes an accounting problem. Every unpaid invoice ties up working capital that could have funded payroll, supplier bills, rent or investment. The more the business grows, the more important it is to track outstanding balances by ageing bucket.

A monthly receivables review is often enough to reveal which customers need stronger follow-up, which contracts should require prepayment, and which balances are not worth chasing endlessly.

The receivables process is stronger when the commercial team and accounting team share the same playbook. Sales should know when a customer should be put on hold. Accounting should know when a file becomes provisionable. Management should know when the case is no longer a collection issue but a loss issue.

In practice, this means:

• invoices sent on time and with the correct terms;
• payment delays escalated quickly;
• all reminders archived in one place;
• final decisions validated before closing the period.

This discipline is often what separates a file that is defensible from one that is merely plausible.

The easiest way to miss a bad debt issue is to leave it until closing. A receivable that has not been followed for months becomes harder to document, harder to explain and harder to classify correctly. The best practice is to review the ageing of balances every month and mark the cases that need legal or accounting attention before the books are closed.

A good closing file should show:

• what was still collectible at the last review;
• what had already been escalated;
• which balances were provisioned;
• which balances were written off;
• which VAT lines were adjusted and why.

That discipline keeps the closing process fast and avoids the usual debate about whether the loss is "likely" or "final". At year-end, that difference matters a lot.

A clean file usually follows the same path: friendly reminder, formal notice, solvency review, possible provision and then write-off only once the loss is sufficiently established. That séquence matters because each step strengthens the file and reduces the risk of a tax challenge later.

• do not confuse overdue with irrecoverable;
• centralise all evidence in one place;
• validate the VAT treatment before posting the loss;
• review large balances monthly rather than at the last minute.

This is often what separates a file that is merely plausible from a file that is truly defensible at year-end.

In larger files, this séparation also helps the business decide whether the right next step is a final reminder, a negotiated settlement, a legal escalation or a clean accounting loss. That decision is much easier when the operational and closing files are not mixed together.

We can implement a clear accounting and tax procedure for your doubtful and irrecoverable receivables.

Discover our accounting and financial steering support

Sound bad debt management rests on three pillars: legal qualification of the file, documentary evidence and consistent VAT and accounting treatment. Getting all three right is what allows you to defend the loss and avoid a reassessment later.

Do you have significant unpaid receivables to deal with before the year-end close?
We can review the files and secure their accounting and tax treatment.

(Official sources: BOFiP on VAT for bad debts, BOFiP on impairments and losses on receivables, Article 272 of the French Tax Code, ANC French Chart of Accounts)