Doubtful and worthless receivables: when is a provision made?
Conditions for making a provision for doubtful trade receivables that cannot be collected, the distinction from worthless receivables, secured receivables, later collection and the VAT adjustment.
When a customer does not pay, the receivable stays in the books and tax has already been paid on the profit from the sale. The Tax Procedure Law offers two tools for this situation: the provision for doubtful receivables and the worthless receivable.
Doubtful receivables
Receivables related to earning business income are considered doubtful in the following cases:
- Those in litigation or enforcement: a lawsuit must have been filed in court or enforcement proceedings started for the receivable.
- Small receivables: receivables that remain unpaid despite being requested more than once by protest or letter and are too small to justify a lawsuit or enforcement. In 2026 this limit is TRY 25,000.
Once these conditions are met, a provision can be made for the amount of the receivable on the valuation date, and the provision is expensed. The provision must be made in the period in which the conditions arise; if it is left to later periods, it may not be deductible in the relevant period.
Secured receivables
No provision is made for the part of the receivable covered by security. For example, if there is a TRY 200,000 letter of guarantee or mortgage for a TRY 500,000 receivable, the provision is made on TRY 300,000.
Worthless receivables
Receivables that have definitively become uncollectable by a judicial decision (a court ruling) or a legal settlement are worthless receivables and are expensed directly at their recorded value. Situations such as waiving part of the receivable under a concordat or the receivable becoming time-barred are assessed in this context.
| Doubtful receivable | Worthless receivable | |
|---|---|---|
| Situation | Collection doubtful | Collection impossible |
| Condition | Litigation, enforcement or the small-receivable condition | A final situation such as a court ruling, settlement or concordat |
| Entry | A provision is made | The receivable is expensed directly |
| VAT | No adjustment | An adjustment can be made |
VAT adjustment
A receivable becoming wholly or partly worthless counts as a change in the consideration for the transaction. The seller can deduct, by way of adjustment, the VAT on the part that has become worthless. At the doubtful receivable stage, no VAT adjustment is made.
Later collection
If a receivable for which a provision was made is collected later, the amount collected is recorded as income in the period of collection. With partial collection, only the part collected becomes income.
Accounting entries
| Transaction | Entry |
|---|---|
| Transferring the receivable to doubtful | 128 Doubtful Trade Receivables (debit) / 120 Customers (credit) |
| Making the provision | 654 Provision Expenses (debit) / 129 Provision for Doubtful Trade Receivables (credit) |
| Later collection | 102 Banks (debit) / 128 (credit); reversal of the provision 129 (debit) / 644 Provisions No Longer Required (credit) |
Practical tips
- For overdue receivables, send a written demand for payment by KEP or notary: Payment demand
- Do not delay the decision to sue or start enforcement; the provision can only be made at that stage.
- Prepare a receivables ageing schedule at year-end closing: Period-end procedures
Legal basis: Tax Procedure Law No. 213 arts. 322 and 323; VAT Law No. 3065 art. 35.