Some practices are confronted with bad debtors every once in a while. There are two methods to clear bad debtors. One is to split the invoice amount excluding VAT and the VAT into separate ledgers and the other is to book a credit invoice against the open invoiced amount. When your practice pays VAT on the invoice date you can use either method, but we advise you to use the first and split the invoice into separate ledgers so you can reclaim the VAT easier. When your practice pays VAT on the payment date you can only use the crediting method. This article will explain the first method (how to clear bad debtors onto ledgers).
Before you start
- Note: please check with your accountant before creating or renaming ledgers. You need permission to be able to manage your ledgers. Permissions can be adjusted by practice administrators in
> General Settings > Role Management. - Check that you have the three ledgers below. Please note that the names below are just examples – you will probably have other names for these ledgers.
- “Suspense Account for Bad Debtors”: This ledger should be under the “Cash/Bank” ledger group with the nominal set to “Liquid Assets” and with VAT set to “none”, start amount set to “0”.
- “Writing off Bad Debt”: This ledger should be under the “Other” ledger group with the nominal set to “Accounts Receivable”, the payment option set to “no”, the payment method left blank and the VAT set to “none”. Make sure the radio-buttons Balance and the radio-button Debit are selected.
- “VAT Bad Debtor”: This ledger should be under the “Other” ledger group with the nominal set to “VAT”. The VAT should be set to “none”. Make sure that this ledger is selected as “Balance & Debit”.
- In order to write off an invoice, you will need to note the invoice number, invoice amount excluding VAT amount and the actual VAT amount of the invoice.
For more information on creating ledgers please see the Related Articles below.
Step-by-step instructions
We will clear the debt by splitting the VAT and the invoice amount without VAT into separate ledgers. The VAT that you have paid, but have never gotten from the client, can then easily be reclaimed because it has been booked into a ledger specifically set up for this purpose.
In this example, the bad debtor was invoiced for the total amount of £50. The invoiced amount without VAT is £41.67 and the VAT amount is £8.33. We need these amounts in order to clear the bad debt.
- Go to
> Financial > Balance Cash/Bank. - Click Add New Transaction on the ledger “Suspense Account for Bad Debtors”.
- Search and select the invoice that needs to be cleared by clicking on the right one in this list:
Or you could enter the invoice number in the search box in the top left corner. - On the right side, make sure the full invoiced amount is entered in the field “amount”.
- The “no.” field is a mandatory numeric field that can be used to group transactions. This will help identify particular payments and can be used as a unique identifier as you can filter on it later on.
- Enter the invoice number to which this transaction belongs to in the “description” field.
- Leave the rest as is and click Save.
You have now booked the full invoiced amount to the suspense account for bad debtors. - Enter the ledger number of the “Writing off Bad Debt” ledger in the search box on the top left side or enter “Writing off Bad Debt” in the box and the ledger will appear:
Select the “Payment out Writing off Bad Debt” ledger.
This is box titleIMPORTANT! Ensure that you are selecting “Payment OUT Writing off Bad Debt”. Do not select “Payment IN Writing off Bad Debt”, because this will cause an unbalance on your ledgers.
- On the right side, fill in the invoice amount without VAT in the field “amount”. In this example that amount is £41,67:
- Enter the same number in the field “no.” as you did in step 5.
- Enter the invoice number in the “description” field.
- Click Save.
- Enter the ledger number of the “VAT Bad Debtor” ledger in the search box on the top left side or enter “VAT Bad Debtor” in the box and the ledger will appear:
-
Select the “Payment out VAT Bad Debtor”.
This is box titleIMPORTANT! Ensure that you are selecting “Payment OUT VAT Bad Debtor”. Do not select “Payment IN VAT Bad Debtor”, because this will cause an unbalance on your ledgers.
- On the right side, fill in the VAT amount in the field “amount”:
- Enter the same number in the field “no.” as you did in step 5.
- Enter the invoice number in the “description” field.
- Click Save.
If this is done properly the table below should look like this:
The invoice is now completely processed and the invoice is no longer outstanding on the client file, with the VAT split out into a separate ledger to claim on later on.
More about this
How do I mark the client as a bad debtor?
To prevent future issues with this client, we advise marking these types of clients as bad debtors in Animana. In order to do this, please proceed with the following steps:
- Search for the client and click the tab Client Data.
- Click the subtab Financial.
- Tick the “Bad Debtor” box.
- Click Save.
How do I find transactions that have been grouped by a “No.”?
In this article, we’ve discussed the usage of the No. field when adding a transaction to a ledger. This section will explain how to find back transactions related to a particular “No.”.
- Go to > Financial > Balance Cash/Bank.
- Click the Grouped Per Bank Account link next to the “Suspense Account for Bad Debtors” ledger.
- Under the column “Document Id” you will find the numbers that have been assigned to a particular transaction:
- In this instance we want to see the transactions related to No. “87”, once that number is clicked an overview of all the related transactions is shown:
