What is the Write-Off?

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The Write-Off feature must be explicitly enabled in your account to use it. Please contact support@billwerk.com to have it enabled.

In response to merchants' requirements for managing uncollected revenues from their contracts, billwerk is adding the new feature - Write-Off.  

The term write-off is known in a financial world. It is defined as an accounting process that decreases or removes the value of an uncollected accounts receivable recorded on the general ledger.

Note: A tax write-off is simply a recorded reduction in assets that is allowed to be taken as a deduction on a tax return. An other example could be a company's building being destroyed by natural causes. It will be written-off to remove the building from the books because the asset is no longer valid.

Write-Off also applies to uncollected receivables, which are managed in billwerk.

Individual Value Adjustment vs. Write-Off

There are several ways how you, as a merchant, can react to customers that do not pay open receivables for a long time. In accounting, two different methods can be applied.

Individual Value Adjustment - used only when there is still a chance the debt is going to be paid by the debtor.
Tax accounts are not touched during this process. The value of the receivable is adjusted based on the remaining probability of payment, but it is not counted as an uncollected debt,

Write-Off - performed as a final step when there is no realistic chance that the customer will pay the debt. It is used to have your accounts balanced in the end. This way allows you to have a better visibility of still open receivables. Tax account is affected by the write-off process. Taxes that have been paid for a receivable by you, are being reimbursed.

In billwerk, we only support Write-Off, not Individual Value Adjustment.

Our subscription management system allows you to send payments reminders and dunnings to your customers, this is done with the assumption that eventually the customer will pay the open receivables. If that is not the case, billwerk provides a simple solution to write-off the debt in just one final step. Receivables can only be written-off after a due process has been followed by you to ensure there is no realistic chance the customer will pay his dues.

Note: From accounting point of view, the due process that needs to be followed before performing a final write-off, is required to be defined and agreed on independently of billwerk with your tax accountant, based on your business model.
Please, make sure that you use our write-off functionality after consulting with the tax accountant.

The following image describes the creation of a receivable and writing it off from an accounting perspective:

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Fig.1 Revenue creation and write-off in accounting

  1. Whenever a revenue account creates a receivable, a tax is added to it simultaneously. To avoid paying taxes for something that was never consumed, we write-off the debt to correct it.
  2. When we are sure that we are not going to get anything from the receivables account, we move revenues to the bad debt allowance account. Tax account is being corrected into the amount that has been written-off.

Write-Off in billwerk

Once the preconditions for write-off is fulfilled on your side, there are additional things to consider when you want to use billwerk to perform a write-off.

billwerk sees write-off as a final action in contract, after you are sure, you will not get anymore money for the open receivables issued to the customer. When writing off a contract, all open receivables are written-off at the same date.
Given the preconditions from an accounting point of view, for instance it is not feasible to write-off a contract while still creating new invoices. Therefore, we put the following preconditions in place that needs to be fulfilled in a contract, before the write-off can be performed:

billwerk's preconditions

  • The contract has an end date and has been fully billed
  • The contract has open receivables
  • Write-Off's booking date is in current month or earlier
  • Latest invoice date must be before write-off booking date

When performing a write-off, you can choose a booking date when this should be executed in accounting. For example, if you want to write everything off at the end of a month, you can choose the date accordingly.

After a contract has been written-off, the contract can't be re-activated in any way. You can not update it or undo the write-off in any way. If a customer wants to continue to use your service, after you have written-off his contract, the only way to grant him access once again is to create a new contract. If a customer pays for a written-off receivable, the write-off can be undone in your accounting or use the payment to start a new contract manually.

Individual contracts vs Multiple contracts

We implemented Write-Off on the contract-level. There are different ways to proceed with the Write-Off feature based on numbers of contracts that are going to be written-off:

  • Individual contract - merchants are able to write-off one specific contract
    • via UI
    • via API
  • Multiple contracts - merchants are able to write-off multiple contracts at once
    • via UI
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Fig. 2 Write-Off options

 

Use case for Individual contract

Creating new customer

How can I create a new customer?

Adding a contract

How do I create a contract?

Adding a payment

We can now see that the contract has been created in the Contract Ledger segment. Inside the inline-list there is one invoice as well. Let's simulate what happens next by adding a payment.

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  1. Go to Perform Action drop-down list located in the top-right corner and select Capture ext. Payment/Refund.
  2. To simulate a payment we need to insert data like Booking Date (set to 25/03/22) or Amount (89,25 EUR) to applicable textboxes. Press OK button.
  3. Created Payment 1 is enlisted in the Contract Ledger segment with the balanced Invoice.

ss9.png

Create an Invoice manually

At this stage we need to simulate the future to show what happens to the subscription by adding another invoice manually.

How can I issue a one-time invoice to a customer?

Write-Off

How to perform write-off in one contract via UI?

How to perform write-off in many contracts at once?

Impact

  • on reporting data
    • Written-Off receivables still count as revenue for billwerk.
    • Written-Off invoices are still contained in the open items reporting, so you know that there has once been a receivable to be paid by the customer.
    • We added a new column to most reports that includes open items or revenues which indicated if/how much of the receivable has been written-off
  • on passive deferrals
    • All remaining passive deferrals in a contract are resolved at the booking date of the write-off and they are combined in a single early resolved deferral, that is marked with “(Abschreibung)” at the end of the current booking text.
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