Turn Bad Debts Into Better Decisions
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Every accountant who works with SMEs knows the routine. Month after month, you open your client’s trial balance and see the same debtor sitting there… ageing, growing, and turning into a problem. Your client keeps hoping the money will come in, but hope is not a credit control strategy. As a Chartered Business Accountant in Practice (CBAP), your role is not just to record what has happened. Your role is to help your client make informed decisions that protect cash flow, reduce legal exposure, and strengthen financial discipline.
Non-paying debtors are one of the most common reasons small businesses run into cash-flow trouble. Left alone, they also create legal and accounting risks. Here is the practical, step-by-step approach every CBAP should take.
1. Start With the Facts: Is the Debtor Actually Recoverable?
Before you advise, you need a clear picture. Help your client assess:
How long has the amount been outstanding?
Anything older than 90 days becomes a serious concern in most industries.What was the credit agreement?
Was there a signed document, a quote accepted, email confirmation, or purchase order?Has the debtor been contacted recently?
Many SMEs avoid uncomfortable conversations. You can guide them in establishing structured follow-ups.Are there any disputes about the goods or services delivered?
This factual base helps you decide whether the debtor is recoverable or should be written down.
2. Strengthen Communication Before Problems Escalate
Most overdue accounts can still be resolved if approached early and professionally. As a CBAP, coach your client on:
Sending formal statements and reminders
Making a documented phone call or WhatsApp message
Asking for a commitment (date and amount)
Following up in writing
This creates a paper trail, which is essential if they later need to recover the debt legally.
3. Assess the Accounting Treatment: Do We Need to Impair or Write Off?
Your duty includes ensuring that the financial statements are accurate and reflect reality.
If the debtor is unlikely to pay, consider:
Impairing the receivable (IFRS for SMEs Section 11 requires expected credit loss assessment)
Creating or adjusting the allowance for doubtful debts
Writing off the debtor if recovery is no longer possible
Explain this clearly to the client. Many business owners think writing off a debt is “giving up,” but it is actually good financial hygiene. It avoids overstating assets, profits, and tax liabilities.
4. Address the Tax Impact
From a tax point of view:
A debt may be deductible for tax only when it is actually written off in the books.
SARS expects proper records showing genuine attempts to recover the debt.
This means your advice directly affects the client’s taxable income. Good documentation equals tax protection.
5. Consider Legal Options—But Only Where It Makes Business Sense
Legal recovery should never be the first step. Help your client weigh:
The value of the debt vs the cost of recovery
Whether the debtor is still operating
If a letter of demand might prompt payment
Whether small claims court applies
If legal action would damage a key relationship
You are not giving legal advice, your role is to help your client understand the financial implications and direct them to the right professionals when needed.
6. Fix the Root Cause: Why Did This Happen?
A non-paying debtor is not an isolated event. It tells a story about systems, processes, or decisions. As a CBAP, help your client find the gaps:
Were credit checks done?
Were terms too generous?
Were follow-ups too slow or inconsistent?
Was the client over-reliant on one debtor?
Were delivery notes and invoices properly controlled?
Every overdue account is a learning opportunity to adjust the client’s credit policy, tighten controls, and improve working capital.
7. Implement Better Processes Going Forward
This is where your value shines. Recommend simple tools:
Age analysis reviews each month
Credit limits and clear terms
Automatic reminder emails
Escalation rules (day 30, 60, 90)
Deposit requirements for risky customers
Proper documentation before delivering services
When your client sees how these measures prevent future losses, you move from being a bookkeeper to becoming a trusted business adviser.
A Good CBAP Protects Cash Flow Before It Becomes a Crisis
When a debtor stops paying, your client may feel frustrated, embarrassed, or unsure of what to do. Your job is to bring structure, clarity, and practical guidance. By combining accounting requirements, legal awareness, and business insight, you help the client:
Understand the risk
Take appropriate action
Correct the accounting records
Avoid repeating the mistake
This is the essence of the CBAP role: using financial information to support better business decisions.
If you help your client deal with non-paying debtors proactively and professionally, you do far more than balance the books. You help protect the business itself.
