Overview

A provision/doubtful debt is an account receivable that is considered likely to become uncollectible in the future. This typically arises when a client is experiencing financial difficulties or when there has been a significant period of time since the original credit sale without payment.

The provision for doubtful debts (also known as allowance for doubtful accounts or bad debt provision) is an accounting practice used to estimate the amount of accounts receivable that a company does not expect to collect. This provision is recorded as an expense on the income statement and reduces the value of accounts receivable on the balance sheet.

The (evergreen) provision feature offers users the flexibility to create provisions against individual invoices. Future releases may include additional versions, such as the ability to provision for the entire customer balance or to estimate provisions based on percentage on the ageing period of the balances. However, these plans are tentative, and the release of these versions is not guaranteed.

Note: The feature is a preview release and all the functionality may not work as expected.

Front end Configuration:

A) Client Provision Reason Code

A new parameter to store the reason codes and the ledger accounts for provision has been introduced. Below are the details: Note: It’s built on the existing client write off reason code form with a few tweaks to accommodate provision requirements.

Navigation path: Accounts receivable/Credit and collection > Setup > Client provision reason codes

Field	Description	Purpose
Company	List of all legal entities	Each legal entity will have its own reason codes
Reason code	List of all reason codes marked for clients
Description	Reason code description
Debit account	Ledger account for provision	This ledger account will be used when provision journal is created.
Credit account	Ledger account for provision	This ledger account will be used when provision journal is created.
Default	Check box	Defaults the account in provision parameter and journal
Provision for Sales tax account	Ledger account for provision	This ledger account will be used to provision sales tax amount when a provision journal is created.

Note: We suggest using a different main account for default provision for sales tax in the reason code to park the sales tax provision to a separate main account from the control account for sales tax. This will not impact the sales tax reporting and payment to tax authorities.

Data management: New reason code parameter can also be imported and exported via data entities.

Security: The ability to configure and view provision reason codes is controlled by new privileges and duties as follows:

Privilege: View customer write-off reason code setup
Maintain client write-off reason code setup
Duty: View client write-off reason code setup
Maintain client write-off reason code setup

The duties have been added to the following roles:

Existing roles- Collections manager, accounts receivable manager, accounting manager

B) New Parameter in Accounts Receivable

A new parameter in accounts receivable parameter has been added to manage the creation and reversal of provision. A new fast tab is introduced to organize all the controls. Name of the fast tab- Provision

Navigation path: Go to Accounts receivable > Setup > Accounts receivable parameter > Collections

Controls	Description
Provision Journal	List of all the daily general journals – This journal will be used to create provision.
Provision Reversal Journal	List of all the daily general journals – This journal will be used to reverse provision.
Separate sales tax (bullion)	To separate the sales tax from the original transaction in the provision.
Default provision/reversal reason	The default reason code, as well as the associated ledger accounts, will automatically populate during the creation or reversal of a provision. However, users have the option to modify the default reason code at the time of creating or reversing the provision.

Data management: New parameter can also be imported and exported via data entities.

Security: The access level for this parameter aligns with the existing roles, duties, and privileges for the accounts receivable parameter.

Functionality

To facilitate the creation and reversal of provisions, a new ‘Provision’ button will be introduced across multiple screens, providing users with the flexibility to manage provisions from various points within the system. Below are the screens:

Provisioning an invoice from the Open customer invoices page:
Navigation path- Go to Accounts receivable > Invoices > Open customer invoices

Note: Provision is allowed for one invoice at a time
Provisioning transactions from collections page:
Navigation path- Go to Accounts receivable > Customers > All customers > Collect > Collections

Note: Provision is allowed for one invoice at a time

Upon clicking the provision button, a dialog box will appear containing the following details:

Date – Default today’s date, editable. Date is mandatory
Reason code – Default from provision parameter, editable. If a user selects any other reason code, then the default debit, credit, and provision for sales tax (if configured) should populate from the reason code and the same should be used to create the journal. If the reason code configuration is missing, validation should be in place to inform the users. Provision reason code is not setup. Please setup a provision reason code first. It’s a mandatory field
.
Description – Description of the reason code selected above, not editable
Ok – To process the creation of provision. Upon clicking the provision button, a general journal will be created and ready to be posted in General ledger > General journal > Journal entries. A notification on the screen saying ‘Provision process is complete. A general journal XXXXX has been created and ready to be posted’.
Cancel – To cancel the process.

After creating a provision journal, it will be ready for the finance team to post in the general journal.

Note: Date and reason code should be a mandatory field as it’s necessary to have a reason code as it populates all the ledger accounts related to provision journal.

Note: Invoice(s) or customer balance should not be available for provision if the below conditions are met:

Invoice(s) marked for settlement – Validation – One or more transactions are closed or marked for settlement. You can provision only open transactions that are not marked for settlement
Credit notes
Open payment

Security: The ability to create a provision is controlled by a new duty and privilege as follows:

Privilege: Maintain Provision of doubtful debt
Duty – Maintain Provision of doubtful debt

Existing roles – Collections manager, accounts receivable manager, collections agent

General Journal

Once the creation of provision is completed, a general journal will be created and available for posting for the finance team. Below are the details:

Field	Source
Date	From the provision dialog box date field
Company	Default logged in company
Account (DR)	Debit field in client provision reason code form
Account (CR)	Credit field in client provision reason code form
DR (amount)	If the provision is for an invoice then amount defaults from the invoice balance. If the provision is for the entire customer balance then the amount defaults from the customer balance.
CR (amount)	If the provision is for an invoice then amount defaults from the invoice balance. If the provision is for the entire customer balance then the amount defaults from the customer balance.
Offset company	Default logged in company
Financial dimension	FD will populate from Invoice transaction based on the ledger account structure allowed segment values.
Description	Provision transactions for Invoice number (same description for header)
Currency	Invoice currency
Exchange Rate	Active exchange rate for the date for the provision

After posting the general journal, the provision against the invoice will be completed and the relevant ledger account configured at provision reason code will be hit.

Accounting Entry (without sales tax)

DR	CR
Doubtful debt	Provision for doubtful debt

Accounting Entry (with sales tax)

DR	CR
Doubtful debt	Provision for doubtful debt	Provision to reclaim sales tax

Changes in Existing Screens

A new column for Provision has been added in multiple screens which shows the provision amount against the invoice(s), if any.

Open client invoices screen – Navigation path: AR > Invoice > Open client invoices

Collections screen – Navigation path: AR > All customers > Collect > Collections

Matter invoices – Navigation path: MMA > Matter invoices > Matter invoices

Note: The provision column shall populate the provision amount once the provision journal is created.

Impact on Existing Functionalities

Automatic settlement: Provisioned invoices can’t be automatically settled. Automatic settlement skips all the provisioned invoices. (Standard)
Customer receipt: Provisioned invoices can’t be settled. A validation to restrict the settlement is added.
Credit note: Provisioned invoices can’t be used to create or post a credit note and can’t be settled with a credit note. A validation to restrict the settlement is added.
Double provision: An invoice that has already been provisioned cannot be provisioned a second time. A validation to restrict the settlement is added.
Write off: Invoice(s) against provision has been made, write off button should not be available (disabled). Once the provision is reversed, the write off button should be active.
Client payment journal: Navigation path: AR > Payment > Client payment journal – Invoices with provisions can’t be settled, a validation to restrict the settlement is added.