Bad Debts in Hong Kong: When a Customer Won't Pay, and How to Write It Off

By Di Ma, Project Manager 29 OCT 2026 · 4 MIN READ

Every business that sells on credit eventually meets a customer who doesn't pay. The invoice ages from 30 days to 60, then 90, the emails stop being answered, and at some point the question changes from "when will they pay?" to "will they pay at all?" Here's how to handle that point properly: chasing, providing, writing off, and the profits tax rules.

Before it's a bad debt: chase it

Know what's overdue. An aged list of receivables, reviewed at least monthly, shows which invoices are slipping before they're lost.
Remind early and politely, then send a statement of account, then call. Most late payments are disorganisation, not refusal.
Agree a payment plan if the customer can pay something. Get it in writing.
Send a final demand with a deadline, stating what you'll do next.
Consider the Small Claims Tribunal for claims up to HK$75,000. Hearings are informal and lawyers aren't allowed (Judiciary guide). Larger claims go to the courts; take legal advice first.

The Certanta client portal, Owed to you page for the fictional demo company Harbourfront Trading Ltd: receivables aged into not yet due, 1 to 30, 31 to 60, 61 to 90 and over 90 days, with HKD 357,225 in the 31 to 60 days bucket, and a list of two open invoices: Island Retail Group HKD 147,720 and Kowloon Wholesale Ltd HKD 209,505, with days overdue. — Receivables aged in the demo company's portal: which invoices are slipping, and for how long.

Doubtful or bad?

A doubtful debt is one you still hope to collect but probably won't, in full or in part. In the accounts it's covered by a provision (an allowance), and the receivable stays on the books.
A bad debt is one you've given up on: the customer has been wound up or disappeared, a court judgment can't be enforced, or chasing further would cost more than the debt. It's written off: removed from receivables.

Under full HKFRS, the allowance is based on expected credit losses, so it can be made before any specific problem appears. Under HKFRS for Private Entities and the SME-FRS it's based on evidence that a debt is impaired. Agree the approach with your auditor (see SME-FRS vs HKFRS).

The entries

The three entries (illustrative, a HK$40,000 invoice)
When	Entry
Doubtfulcustomer stops answering; 120 days overdue	Dr Bad and doubtful debts (expense) 40,000 Cr Allowance for doubtful debts 40,000
Written offcustomer wound up; nothing more to collect	Dr Allowance for doubtful debts 40,000 Cr Trade receivables 40,000
Recoveredthe liquidator pays HK$6,000	Dr Bank 6,000 Cr Bad debts recovered (income) 6,000

Record the reason for each provision and write-off: the emails, the demand, the winding-up notice. Your auditor will ask for them, and so may the IRD.

Profits tax: when is a bad debt deductible?

Section 16(1)(d) of the Inland Revenue Ordinance allows a deduction for:

bad debts proved, to the assessor's satisfaction, to have become bad during the basis period; and
doubtful debts, to the extent they're estimated, to the assessor's satisfaction, to have become bad during that period,

even if the debt fell due in an earlier year. Two conditions matter in practice:

The debt must have been taxed as income first. The deduction is limited to debts that were included as a trading receipt in the profits of the period in which they arose. A sale you invoiced and booked as income qualifies. A loan to a friend, a director or another company generally doesn't, unless lending money is your business.
Recoveries are taxable. Anything recovered later on a debt already deducted is treated as profit of the period in which it's recovered.

The test is that the debt has become bad, or is estimated to have done so, to the assessor's satisfaction. That rests on evidence about the specific debt. A general percentage provision against all receivables isn't the same thing; ask your tax adviser how yours will be treated.

Keeping bad debts rare

Check new customers before giving credit, and set a limit.
Invoice promptly and correctly: a disputed invoice is a slow invoice (see invoice requirements).
Ask for deposits on large or custom orders.
Stop supplying customers who are well past their terms.
Watch your cash flow: late payers show up first in the 13-week forecast.

How Certanta helps

Receivables aged and current in your portal: who owes you, how much, and how late.
Every payment matched to its invoice, so the overdue list is real, not a list of payments nobody allocated.
Provisions and write-offs booked with the documents behind them, ready for the auditor and the tax computation.
Ask about it. "Who owes us money, and how overdue is it?" is a question for the AI assistant in your portal.

Frequently asked questions

What is the difference between a bad debt and a doubtful debt?

A doubtful debt is one you may still collect but probably will not, in full or in part; it is covered by a provision and stays in receivables. A bad debt is one you have given up on, and it is written off.

Are bad debts tax-deductible in Hong Kong?

Yes, under section 16(1)(d) of the Inland Revenue Ordinance, bad debts proved to the assessor's satisfaction to have become bad during the basis period, and doubtful debts to the extent estimated to have become bad, are deductible. The deduction is limited to debts that were included as a trading receipt when they arose, or to money lent in the ordinary course of a money-lending business in Hong Kong.

Is a loan to a director or friend deductible if it is not repaid?

Generally not as a bad debt for profits tax, because the deduction is limited to debts that were included as a trading receipt, unless lending money is the company's business.

What happens if a written-off debt is later paid?

The amount recovered is treated as part of the profits of the period in which it is recovered, under section 16(1)(d) proviso (ii).

What is the Small Claims Tribunal limit in Hong Kong?

HK$75,000. The Small Claims Tribunal hears civil claims up to that amount; hearings are informal and legal representation is not allowed. A claim cannot be split to fit under the limit, but the excess can be abandoned.

When should a debt be written off?

When there is no realistic prospect of collecting it, for example after the customer has been wound up, when a judgment cannot be enforced, or when further collection would cost more than the debt. Keep the evidence of why.

Know who owes you, and for how long

Certanta keeps your receivables aged and current, matches every customer payment to its invoice, and keeps the paper trail your auditor and the IRD will ask for.

Open the demo See pricing

This article summarises the Inland Revenue Ordinance (Cap. 112) as published on e-Legislation on 29 October 2026. It is general information, not legal, tax or accounting advice. Whether a particular debt is bad, and how much of it is deductible, depends on the facts; ask your adviser before writing off a material amount or starting legal action.