Our Bad Debt Policy is for organizations aiming to enhance their financial management practices. By establishing consistent methods for calculating bad debt reserves, referring accounts to collection agencies and charging off uncollectible amounts, this policy maximizes cash flow and ensures that accounts receivable is accurately stated. This approach helps businesses mitigate financial risk while maintaining a healthy balance sheet, making it a valuable tool for decision-makers seeking to optimize their financial strategies.

This document includes two samples, each tailored to guide organizations through managing bad debts effectively. Sample 1 outlines a structured methodology for determining reserve amounts and emphasizes the importance of regular reviews and adjustments based on historical data. Sample 2 focuses on a consistent approach to assessing both general and specific reserves, ensuring that all outstanding accounts are evaluated for potential write-offs. Together, these samples provide a framework for organizations looking to implement best practices in bad debt management.

Sample procedures include:

• All uncollectible accounts must be charged off against a reserve for bad debts (either the general portfolio reserve or specific reserve) in the period during which they are deemed as uncollectible.
• A report will be prepared monthly reflecting the accounts that are currently outstanding with the collection agency and their related status.
• A specific reserve is also calculated at least quarterly.