Uncollectible accounts are one of the biggest nightmares for self-employed and SMEs. For this reason it is advisable to take preventive measures -such as making a provision for accounts, taking out policies against non-payments- before they occur, as well as reactive measures -insistently claiming the debt, going to debt collection companies- once we sense that the delinquency may become entrenched.
An uncollectible account is an uncollected payment of an invoice on which you extended credit to the customer for the sale of your products or services. You will not always collect for your work or products in cash or in kind, and it is common to establish payment terms so that your customers can pay your invoices.
We are facing a bad debt when your business has already used all the ‘cartridges’ to recover the debt but no results have been obtained for a period of 180 days. These ‘cartridges’ are mainly the complaint channels and the out-of-court negotiation with the debtor company. Until then the bad debt was considered an active debt, within its established term for cancellation. Now it is a delinquent debt and in your accounting it will be reflected as a loss, for all tax purposes.
When a personal loan debt is time-barred
The statute of limitations may also be affected by the terms of your contract with your creditors and, if you have moved, by the laws of the state where you are sued. You may want to consult with an attorney to find out how this period is calculated and when the period may have started with respect to your debt.
In some states, making a partial payment on an old account may restart the time period in which you can be sued. Likewise, in some states, sending a written statement acknowledging that an old debt is owed may restart the time period during which you can be sued.
If a debt collector initiates a lawsuit for a debt that has gone beyond the statute of limitations period, you have a defense against the lawsuit. If you are sued, and you believe that the statute of limitations has expired, you may wish to consult an attorney. It is a violation of the Fair Debt Collection Practices Act for a debt collector to file a lawsuit against you or threaten to sue you when he knows that the statute of limitations has expired.
October 26, 2015 Actions to consider, for the “write-off of bad debts”, to avoid questions in subsequent audits by the SII by Omar A. Reyes RíosDownload PDF
The SII is validating that the instructions for the collection process that finally covers the acceptance of a write-off are complied with, thus avoiding situations that could correspond to donations or simply give rise to being considered a negligent action that does not allow the amount of the account that becomes uncollectible to be deducted as an expense.
In relation to the third requirement, that is, “that the means of collection have been prudently exhausted”, the SII instruction separates by amount each of the debts, to consider if the requirement has been complied with, since the steps that can be taken for the collection of a debt of 10 UF are not the same as those for a debt of more than 50 UF. Thus, the SII classifies them in three ranges: i) individual debts up to 10 UF; ii) debts between 10UF and 50 UF; and iii) debts exceeding 50 UF.
How to know if my debt is time-barred
A corporation that provides electronic payment processing and administration services to financial institutions, governments and businesses, charging a fee for these services. In order to provide these services, it hires an Argentine company to perform the data processing.
At a certain point, problems were detected in the system for processing transactions in dollars, which caused the company to transmit and therefore receive from the banks issuing the credit cards figures that were less than the correct ones. The amounts in dollars were taken as if they were amounts in Uruguayan pesos, not being converted at the exchange rate. The payments that the company then made to the merchants through the paying banks were made correctly, i.e. taking the value in dollars.
This error in the processing system caused the company to suffer a loss since it received lower amounts than those it was to pay to the merchants. The error was corrected and different actions were taken to recover the amounts that arose as a mismatch between the collection received and the payments cancelled.