A provision matrix turns a judgement about bad debts into a calculation someone else can check.
Group receivables by shared risk characteristics, split each group into ageing bands, apply a loss rate to each band based on historical write-offs, adjust the rates for current and expected conditions, and add up the results. IFRS 9 allows this matrix under its simplified approach for trade receivables, and it is also a common way to apply CECL in the US.
| Ageing band | Balance | Loss rate | Provision |
|---|---|---|---|
| Current | 600,000 | 0.5% | 3,000 |
| 1 to 30 days | 250,000 | 1.5% | 3,750 |
| 31 to 60 days | 120,000 | 4% | 4,800 |
| 61 to 90 days | 50,000 | 10% | 5,000 |
| Over 90 days | 30,000 | 35% | 10,500 |
| Total | 1,050,000 | 27,050 |
The provision of 27,050 is about 2.6% of the receivables balance. The rates here are illustrative; yours must come from your own history.
If you know a particular customer is in administration or disputing a large invoice, provide for that balance specifically and remove it from the matrix so it is not counted twice.
With balances in B2:B6 and rates in C2:C6, the total provision is =SUMPRODUCT(B2:B6,C2:C6). Keep the historical loss-rate workings on a separate sheet so the rates can be traced.
Each year, compare last year's provision with what was actually written off. If losses were far higher or lower, revisit the rates. Write down the reasoning for any forward-looking adjustment. That record is what an auditor will ask for. See DSO, best possible DSO and CEI for the collection measures that sit alongside the provision.
IFRS 9: trade receivables without a significant financing component use the simplified approach, which always measures lifetime expected credit losses (paragraph 5.5.15), and the standard gives the provision matrix as an example of a practical method (paragraph B5.5.35). UK GAAP (FRS 102): still uses an incurred-loss approach, but a matrix is a sensible way to estimate it. US GAAP (CECL, ASC 326): requires lifetime expected losses on receivables. ASU 2025-05 lets all entities assume current conditions continue for current receivables and lets private companies also consider collections after the balance sheet date, for annual periods beginning after 15 December 2025, with early adoption permitted.
Work out DSO and the cash tied up in late payers. Free to use online.
The Credit Control & Receivables System calculates ageing, DSO, best-possible DSO and CEI from the ledger, shapes a bad debt provision to IFRS 9 / ASC 326 logic and requires independent approval for credit limits and write-offs. Excel, no macros, one-time price.
It can if receivables have similar risk and ageing, but a matrix is more accurate because older debts are far more likely to go bad, and it is easy to build from an aged debtors report.
Recalculate the provision every reporting period using current balances, and refresh the historical loss rates at least once a year.
No. The provision is an estimate of future losses and sits against receivables on the balance sheet. A write-off removes a specific debt you have decided not to collect, and is usually charged against the provision.
Last updated 18 October 2026. General guidance for finance teams; check it against your own policies, systems and local rules.