Sales growth still has to become cash
IFRS 9 describes expected credit losses through a probability-weighted result, the time value of money and reasonable, supportable information, including forward-looking conditions. Source: **curr-stat-ifrs9-text**, paragraph 5.5.17. “Not overdue means no loss” is therefore too simple. Applying one percentage to every customer can also ignore risk differences.
How to read an ageing table
First determine what is measured: time since invoicing or days after the contractual due date. Two companies may use similar headings with different starting points. Then check customer groups, changed payment terms, concentration of large claims and disputed amounts. Moving an old debt into a new contract does not necessarily improve the customer’s economic ability to pay.
An estimate matrix can be useful, but its rates need support. IFRS 9 discusses historical loss information with adjustments and grouping by shared risk characteristics. Source: **curr-stat-ifrs9-text**, B5.5.35 and B5.5.51–B5.5.52. None of the percentages below is an official requirement; they are a wholly fictional arithmetic model.
An educational loss matrix
Suppose current receivables are 200, moderately overdue receivables are 60 and long-overdue receivables are 40. For illustration, the model has already justified rates of 1%, 5% and 30%. The conditional adjustment is 200 × 0.01 + 60 × 0.05 + 40 × 0.30 = 17. Gross receivables are 300 and the balance after adjustment is 283.
Change only the last rate from 30% to 50%. The new loss estimate is 25, an increase of 8. Cash has not left the account at that moment: the estimate of future collection changed. Conversely, the absence of a new charge does not prove that customers paid. A separate reconciliation of receivables movement and receipts is needed.
A write-off and a new estimate are not one event
If an expected loss was already recognised, a later write-off of the related receivable cannot automatically be treated as the same new expense again. Review the adjustment roll-forward: opening balance, charge, reversal, use, foreign-exchange and other changes. Without that detail, a lower allowance can be misread as improving debt quality.
A common error is dividing ending receivables by annual revenue and calling the result an exact collection period. Seasonality, taxes included in balances, receivables sales, perimeter changes and the share of credit sales break simple comparability. The ratio is a prompt for questions, not a substitute for contractual due dates.
What can be concluded cautiously
Compare ageing, loss adjustment, credit sales and post-reporting-date receipts when disclosed. Cases where sales accelerate while cash and receivable quality lag are especially worth examining. But these signs do not prove fictitious revenue. Continue with [working capital](/guides/working-capital/), [revenue recognition](/guides/revenue-recognition/) and [receivables](/glossary/debitorskaya-zadolzhennost/).
Concentration can change the meaning of an average rate
A portfolio of small customers and one large claim can have the same total balance but very different sensitivity to one event. If a large customer is significant, an average portfolio loss rate may conceal its effect. Separate mass homogeneous claims from individually significant cases when disclosed. Do not transfer large-portfolio statistics to one disputed contract without additional support.
Also examine changes in commercial terms. Longer payment periods can increase receivables even with unchanged payment discipline. A move to prepayment can reduce receivables without accelerating collection of old debts. One change in balances cannot choose between these explanations.
A useful follow-up is to find disclosed receipts after the reporting date and match them to the receivables group under discussion. Do not treat every later receipt as confirmation of the whole portfolio: amounts and perimeter must match. If detail is absent, state a limited trend conclusion and leave collection of specific debts open.
A percentage of sales estimates expense; a matrix estimates the required balance
The historical percentage-of-credit-sales method starts with period sales and assigns a doubtful-debt expense. An ageing assessment starts with receivables at the reporting date and determines the required allowance balance. The same word “allowance” does not make a flow and a balance interchangeable. The percentages below are fictional, not IFRS 9 requirements or recommended rates.
Credit sales for the period are 1,500 and the educational loss rate is 1.6%. The percentage-of-sales calculation gives expense of 24. Opening allowance is 9; during the period, 6 of previously covered debt is written off, with no other movements. Closing allowance under this method is 9 − 6 + 24 = 27. Do not subtract the opening 9 from expense 24 again: the opening balance is already part of the roll-forward.
Suppose an independent assessment of the existing portfolio requires an allowance of 33. With the same balance before the new charge, 9 − 6 = 3, the required expense is 33 − 3 = 30. The difference from the sales method is 6. If gross receivables are 400, the net amount under the required assessment is 367, not 373. The difference shows why a stable sales percentage may miss deterioration in the remaining portfolio. The reverse can also occur when credit terms, customer mix or prepayment share changes.
IFRS 9 requires probability-weighted outcomes, time value of money and reasonable, supportable information; certain trade receivables use a simplified lifetime-loss approach. A matrix may be practical, but historical data need suitable grouping and adjustment for current and forecast conditions. Basis: **curr-stat-ifrs9-text**, 5.5.15, 5.5.17, B5.5.35. A mechanical percentage of revenue is not independent evidence of compliance.
Bad debt and use of an allowance already created
After the assessment above, gross receivables are 400, the allowance is 33 and the net amount is 367. If 10 is then considered uncollectible and is fully covered, the write-off reduces gross receivables to 390 and the allowance to 23. The net amount remains 367. There is no new expense of 10; if coverage was incomplete, the missing estimate needs separate recognition. IFRS 9 links direct reduction of the gross carrying amount with the absence of reasonable expectations of recovery in full or in part: **curr-stat-ifrs9-text**, 5.4.4.
A write-off does not prove cash collection or legal termination of every recovery route. An unexpected later receipt also needs separate explanation, not relabelling as new sales. Controls need two reconciliations—gross receivable and allowance—with charges, write-offs and receipts shown separately. The fall from 33 to 23 in this example does not mean customer solvency improved; it reflects use of the coverage.