Enhance your financial management with this policy, which is crafted to define effective bad debt handling procedures. This tool establishes consistent methods for calculating bad debt reserves and guides the referral of accounts to collection agencies and charging off of uncollectible amounts. Businesses can maximize cash flow and maintain accurate accounts receivable reporting by implementing these strategies, ultimately leading to a healthier balance sheet.

This policy includes two samples for robust guidance. Sample 1 presents a structured methodology for determining reserve amounts, highlighting the importance of regular reviews based on historical data to ensure accuracy. Sample 2 emphasizes a consistent approach to assessing both general and specific reserves, ensuring that all outstanding accounts are thoroughly evaluated for potential write-offs. Together, these samples create a framework that empowers organizations to optimize their financial strategies and mitigate risks associated with bad debts.

Sample procedures include:

• A monthly average of outstanding consolidated gross receivable balances (excluding progress billings and percentage of completion) will be calculated for the most recently completed fiscal year.
• A report will be prepared quarterly of all amounts (both foreign and U.S. domestic) recommended to be charged off to the bad debt reserve.
• Develop an AR general reserve at least quarterly, based on company criteria.