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What is the collection effectiveness index (CEI) and why use it? How do payment plans help recover distressed receivables? What legal/regulatory considerations apply to collections? How does dispute management connect to collections and bad debt? What escalation options exist when internal collections fail? How do you handle receivables when a customer files for bankruptcy? What is factoring and how does it differ from a collections strategy? How is bad-debt expense presented in the financial statements? How do you decide when to write off versus continue pursuing a debt? How do you calculate and interpret the bad-debt-to-sales ratio?
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Accounts Payable & Receivable › Collections & Bad Debts

How do CECL and IFRS 9 change bad-debt estimation for receivables?

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Answer

Both move from recognizing losses only when incurred to recognizing expected credit losses upfront. For trade receivables, a practical approach is a provision matrix: historical loss rates by aging bucket, adjusted for current and forecast economic conditions. This front-loads provisions and makes them forward-looking rather than reactive.
Provision matrix: loss% per bucket x balances, x forecast adjustment
= lifetime expected credit loss for trade receivables.
Real-world example Anticipating a downturn, the company increases its ECL provision using higher forecast-adjusted loss rates across all buckets.

Common follow-ups: What is the provision matrix approach? | Why front-load expected losses?

Aging Analysis Reconciliations Collections & Bad Debts
All 23 Collections & Bad Debts questions