The bad debts are usually referred to as uncollectible accounts. Also it referred to irrecoverable debts. It also means that you can register this amount as doubtful account expenses. Each country has its own rules and regulations regarding this process. In Turkey you need to start legal action against the debtor.
What are the Methods of Recording the ‘Bad Debts’?
In most countries, there are 2 options for companies. These options are to define their uncollected debts as ‘bad debts’. One of them is “write off” and the other one is “allowance method.”
In the first option you need to report this debt on the company’s income statement. In this situation a customer’s account is actually written off. While taking this action there is no contra asset account. Such as allowance for ‘Doubtful Accounts’. You need to record in which they become irrecoverable. Also you have to deduct this amount from the debtors account in the balance sheet.
The second option is allowance method. In this option you may record an adjusting entry at the end of each accounting period. With this method you will create an expense account. This account is for your bad debts in your accounting.
You may recover any amount if you have already taken one of these actions. Also you get any amount from debtor for your bad debts. Then you can revize your records for the collected amount. And the remaining amount must be stated as bad debt as before.
Basically there is only one difference between bad debt and doubtful debt. Bad debt is what you have officially written off as uncollectible. But the money you ‘predict’ that it will become a bad debt is called doubtful debt. In other words, doubtful debts have not not officially become bad debts yet. Also there is still a chance of debt recovery. Although you predict that it is very little chance. So some day in the future, it is very likely that the doubtful debt will become a bad debt.
Doubtful Trade Receivables and Bad Debts in Turkey
Turkish Regulations allow you to choose one of these methods. In some cases Turkish customers delay foreign creditors’ payment. This is the way of recording receivable as ‘doubtful’. It is subject to the regulations of the creditor’s country. But in order to record this doubtful debt as ‘bad debt‘, a legal action should be started against the Turkish debtor company. So that it will become certain that this debt can not be collected. And a legal enforcement has become inevitable to chase this debt.
It is indeed very unpleasant to sue your customers in Turkey. In addition you have been trading them for many years perhaps. Most companies perform their sales on credit. And mainly because of economic reasons or their trade history of relationship. Sometimes intense competition in certain sectors do not allow companies to ask money in advance. So ‘credit sales’ becomes the only option.
And when it comes to taxes, companies should pay this income tax to their government. No matter whether they collect their debts from Turkish customers or not. So foreign creditors should be quick in taking actions to recover their money from their Turkish clients. So they aim to minimize their loss.
What would you do, if you have a doubtful debt in Turkey?
Because the statute of limitation is 10 years in Turkey, you have enough time to start legal action against your Turkish customers. Make sure to consider your actions thoroughly because, as you may already know from your own country, legal action may take a few years and also it costs you extra money for legal fees together with attorney fees. Plus, there is no guarantee of debt recovery although you invest money for legal action in Turkey and wait for 2-5 years (on average) because the Turkish debtor company may have already went bankrupt OR stopped its activities even if it has not bankrupt OR has no assets even if it continues its operations and activities.
In sum, legal action in Turkey costs extra money, takes time between 2-5 years and contains the risk of non-recovery.
Alternative Option is Pre-legal Debt Collection in Turkey
Yes, there is a faster, shorter and risk-free way to recover your Turkish receivables which is ‘a help from a local debt collection agency in Turkey‘. Since 2011, ARS Consultancy, as the pioneer and leading debt collection agency in Turkey, offers foriegn creditors to debt recovery services with NO RECOVERY NO FEE. Based in Istanbul, the qualified team of ARS Consultancy is highly trained in investigating Turkish debtors and also very talented in both negotiation and persuasion techniques.
By this way you learn easily that your debt is bad debt or doubtful debt. In order not to lose more money while trying to get back your uncollected amount, you can contact us. No Recovery No Fee, Correct Intervention before exhausting amicable collection ways and the others.
Please contact us to get a commission offer and free advice about your debt case in Turkey; in**@ar************.com
Savaş Sevinç
ARS Consultancy | Assistant General Manager
