How Is Debt Financially Written-Off?
Before debt can be written-off, a write-off contract must exist for the account. Why? Because when you write-off a normal contract's debt, you are actually transferring its debt to a write-off contract.
A write-off contract is just like other contracts in that:
- It holds debt.
- When a payment is received, the contract's debt is reduced.
Debt is transferred to a write-off contract (WO contract) from the customer's uncollectable contracts. The following points highlight important characteristics about the uncollectable contracts and the WO contract:
- The WO contract and the uncollectable contracts should be linked to the same account (note: this isn't a strict rule, it just makes sense because an account's written off funds should be linked to the account).
- Debt may be transferred to a WO contract from any type of contract regardless of debt class, i.e., a WO contract can contain debt that originated in any debt class.
- When you transfer debt from the uncollectable contracts to the WO contract, the debt is removed from the uncollectable contracts (and their status becomes closed- assuming their balance becomes zero).
- If you use the system's automated write-off processing, the system will create WO contracts for you. The system's automated write-off processing can write-off revenue in a different manner than is used to write-off liabilities. Refer to The Ramifications of Write Offs in the General Ledger for more information.
- WO contracts are immune from the account debt monitor (assuming their debt class is marked as not being subject to collection activities).
- WO contracts are not billed (assuming their contract type is marked as being not billable).
- WO contracts start their life with a non-zero payoff and current balances (i.e., they have debt when first started). This debt is transferred from the normal contract(s) whose uncollectable debt necessitated the creation of the WO contract.
- If the customer pays off the write-off debt, the WO contract remains active in case you ever need to write-off debt in the future. If you don't like the WO contract remaining active after it's paid off, you can indicate on the WO contract's contract Type that it is a "one time charge", this will cause the WO contract to be automatically closed when it's paid off.
- You can transfer additional uncollectable debt to the WO contract.
Note:
Bankruptcy write-offs. If you have to write-off
debt because a customer declares bankruptcy, everything stated above
is true. The only thing you have to do is use a different contract
type for bankruptcy write-offs as compared to "normal" write-offs.
On the bankruptcy write-off contract type, simply leave the payment
segment type blank - this way the system will never distribute a payment
to the bankrupt debt (because bankrupt debt is legally uncollectable).