Receivables Ageing and Bad Debts: How to Keep Book Debts Bankable

Receivables are money you've earned but not yet collected. For businesses that borrow against book debts, they also decide how much you can draw. Old, disputed or doubtful receivables reduce both your cash and your borrowing power. This guide explains how to keep them healthy.

Ageing Receivables

Ageing sorts outstanding invoices by how long they've been unpaid — typically 0–30, 31–60, 61–90, 91–180 and over 180 days. It's the simplest way to see which customers are paying late and which debts are becoming doubtful.

Why Old Debts Aren't Bankable

Banks usually treat only receivables up to a set age — often 90 days, though the sanction terms decide — as eligible for drawing power. Older debts, disputed amounts and receivables from related parties are commonly excluded. A business with a lot of old debt can find its drawing power falling even while sales grow.

Provisions for Doubtful Debts

In the financial statements, receivables that are unlikely to be collected should be provided for. Under Ind AS, companies use an expected credit loss approach; under the older Accounting Standards, provisions are generally made for specific debts known to be doubtful. Auditors look closely at old receivables and ask what's been done to collect them.

Writing Off Bad Debts

A debt that's genuinely irrecoverable can be written off. For tax purposes, a bad debt is generally deductible when written off as irrecoverable in the accounts, subject to the conditions in the Income-tax Act.

Practical Steps to Keep Receivables Healthy

1. Agree clear payment terms in writing before supplying.
2. Invoice promptly and accurately — errors delay payment.
3. Review the ageing report every month.
4. Follow up before invoices become overdue, not after.
5. Put customers who consistently pay late on stricter terms.
6. Resolve disputes quickly, so the undisputed part gets paid.
7. If you're a Udyam-registered micro or small enterprise, use your rights under the MSMED Act to payment within 45 days and interest on delays.

Getting Help

Think Filing reviews receivables, prepares ageing and drawing power workings, and helps businesses set up collection processes.