Written-Off Receivables: What They Are, How to Do It Right, and Why Doing It Wrong Costs You Twice

Almost every company has, somewhere in its accounts receivable, invoices no one expects to collect. They sit on the balance sheet for months —sometimes years— as if they were available cash, when in practice they are paper. The write-off of receivables (castigo de cartera) exists precisely to put that reality on the books, and the result has a name of its own: written-off receivables.

The problem is not writing them off. The problem is how it is done. Two widespread beliefs end up costing money: thinking that written-off receivables can no longer be collected, and thinking that a bookkeeping entry is enough for the DIAN (Colombia’s national tax and customs authority) to accept the deduction. Neither is true.

What are written-off receivables, and what does it mean?

Written-off receivables are the accounts receivable a company removes from its assets because, after genuine collection efforts, it concludes they will not be recovered. The obligation is taken off the books and the loss is recognized in the year’s results.

It means two things for your pocket: written-off receivables stop inflating your balance sheet with an asset that does not exist, and you stop paying income tax on revenue that never reached your cash account — provided the write-off meets the legal requirements.

And it means one thing that does not change: written-off receivables remain enforceable. A write-off does not extinguish the obligation. It is not debt forgiveness. The debtor still owes, the invoice or promissory note is still an enforceable instrument, and the company still has a duty to continue collection. The only thing working against you is the clock: the direct action on a promissory note or invoice expires three years from the due date (article 789 of the Commercial Code) and the enforcement action, in five (article 2536 of the Civil Code).

The risk: what happens when receivables are written off badly

• Write off and let go. The written-off receivable leaves the balance sheet and the radar. The debtor, still operating, understands there is no longer a creditor behind them.
• The DIAN rejects the deduction. With no evidence of collection efforts, the expense is disallowed and the inaccuracy penalty is added: generally 100% of the difference (article 648 of the Estatuto Tributario, Colombia’s Tax Code).
• The benefit is taken twice. Booking the impairment and also writing off the same portion of the debt is a double deduction on the same peso.
• Writing off what the law never allowed. Debts owed by economically related parties, shareholders or the parent company do not qualify for this deduction.
• Letting the instrument expire. While the file sleeps, the promissory note loses its enforceability and the written-off receivable becomes an academic discussion.
• Exposing the director. Writing off receivables without supporting evidence can be read as a decision taken without the diligence required by article 23 of Law 222 of 1995.

Requirements to write off receivables under the Tax Code

The Estatuto Tributario (Tax Code) distinguishes two figures that are routinely confused. Article 145 governs the impairment of doubtful or hard-to-collect receivables: that is the provision, and time in arrears is enough. Article 146 governs manifestly lost or worthless debts (deudas manifiestamente perdidas o sin valor): that is the write-off, and there time is not enough — you must prove collection efforts.

Article 1.2.1.18.24 of Decree 1625 of 2016 sets out the five requirements to write off receivables:

1. That the obligation was contracted for valid cause and for consideration.
2. That it was included when computing taxable income declared in prior years.
3. That it was written off in the corresponding tax year, by crediting the uncollectible account and charging profit and loss directly.
4. That the obligation exists at the time of the write-off (not paid, assigned or forgiven).
5. That there are grounds to consider the debt manifestly lost or worthless.

The fifth point is where the deduction on written-off receivables is won or lost. The Consejo de Estado (Council of State, Colombia’s supreme administrative court) has been clear that there is no fixed evidentiary standard for proving uncollectibility: lawyers’ reports recommending the write-off, evidence of the debtor’s insolvency or liquidation, the claim filed within insolvency proceedings, and a documented record of collection efforts all count. The difference between deducting and being penalized is not the age of the invoice — it is the file.

How to write off properly: four moves

1. Clean up before writing off. Sort your receivables by age, amount, collateral and the debtor’s actual situation. A good share of what is about to be written off is still recoverable.
2. Exhaust and document collection. Demand letters, breached payment agreements, pre-legal collection, enforcement proceedings, claims in insolvency. What is not documented did not happen, as far as the DIAN is concerned.
3. Write off in the right year and put it in the minutes. With minutes from the body authorizing the write-off and certification from the statutory auditor or accountant.
4. Do not let the debtor off the hook. The instrument works until it expires, and every peso recovered from written-off receivables comes back in as income.

Trébol Jurídico’s write-off certification service

This is where our service comes in. The write-off certification (certificación de castigo de cartera) is the technical and legal support that turns a bookkeeping entry into a deduction you can defend before a formal DIAN assessment notice. It is not a template: it is a file built case by case.

What we do before, during and after receivables are written off:

• Diagnosis of your receivables. We separate what is recoverable from what is genuinely lost. Before writing off, we verify whether the debtor still has assets, operations or property worth pursuing.
• Collection on what can still be recovered. Pre-legal and legal action on the obligations that still have backing, so you write off as little as possible.
• Requirement check, item by item. Valid cause, consideration, income already declared, non-related counterparty, and existence of the obligation at the time of the write-off.
• Consolidation of the evidence of uncollectibility. Full traceability of collection efforts, certificates of incorporation, the debtor’s insolvency or liquidation status, and the legal opinion supporting the write-off.
• A certification document ready for your accountant and statutory auditor, aligned with article 146 of the Estatuto Tributario and Decree 1625 of 2016.
• Collection after the write-off. Written-off receivables are still yours: we keep the collection action alive for as long as the instrument is enforceable.

The result: your books reflect reality, your deduction is protected against the DIAN, and the debtor still has a creditor behind them.

Do not let your written-off receivables drift. Write to us and we will tell you, on your own client base, what can be recovered and what should be written off.

Sources

• Estatuto Tributario (Tax Code), articles 145, 146 and 648.
• Decree 1625 of 2016, article 1.2.1.18.24.
• DIAN, Ruling 100208192-84 of February 13, 2024.
• Consejo de Estado, Fourth Section, judgments 23010 of 2019 and 23463 of 2020.
• Commercial Code, article 789; Civil Code, article 2536.
• Law 222 of 1995, article 23.