Credit portal




What does outstanding balance mean

what does outstanding balance mean

"If a customer refuses to pay the outstanding amount. "

If a customer refuses to pay the outstanding amount, this would be either verbal or written communication.

If it is a verbal communication, then care should be taken to send a few reminder letters in a polite manner indicating the amount due from the customer.

One should try to the maximum extent to get something in writing from the customer.

If it is a written communication, then there are two ways to deal with such a situation.

1. Some organisations resort to legal procedure for recovery of such debts.

2. Others deal with the quantum of the recovery amount.

If it is a substantial amount, then legal action can be initiated.

If however, the amount is small, then it would not be wise to take any legal action.

Depending upon the amount, the decision has to be taken wisely.

The accounting treatment is given below :

Usually, to deal with such a situation, one should not use

provocative language.

First reminder should always be a polite one enquiring about his welfare and his health conditions. At the end a small note has to be added that as per records, the amount outstanding should be indicated.

Second reminder, after a gap of two to three weeks, should be sent with a polite reminder about the outstanding amount.

Reminders should be sent and if no reply is received or if a reply is received regarding his inability or refusal to pay. the amount should be classified under the head of

(i) Debts outstanding for a period of more than 6 months

(ii) Other Debts.

Then in the subsequent year, again a few reminders are to be sent. If this does not evoke any response, then a Provision for Doubtful debts for the amount has to be made.

And finally, if efforts made do not yield any result, the debt has to be classified under the heading Bad Debts. And finally, this has to be written off in the Accounts.

Category: Forex

Similar articles: