Customer won't pay: VAT, bad debts and bookkeeping

The invoice was due in August, you’ve emailed twice, and the customer has gone quiet. Your VAT return for the third quarter is due in November, and you’re wondering whether you really have to pay VAT on money you never received. Short answer: yes, for now.

VAT has a stricter rule than your profit

VAT and income tax treat an unpaid invoice differently, and that’s where a lot of people go wrong. For VAT, you can only reduce your output VAT once the kundförlust (bad debt, literally customer loss) is konstaterad (confirmed), and each invoice is assessed on its own, according to Skatteverket’s page on bad debts. A customer who is late, silent or has other debts with Kronofogden, the Swedish Enforcement Authority, doesn’t meet that bar.

Skatteverket has been reviewing VAT returns and wrote in 2024 that many companies reduce VAT for losses that aren’t confirmed. That can lead to skattetillägg, a tax surcharge. A reminder or a phone call doesn’t count as having done what it takes to get paid.

The income tax return is more forgiving. There you can deduct a loss that isn’t confirmed yet, if you can show the customer probably won’t pay. Signs of that include an invoice that’s old compared with normal credit terms, several unanswered demands, or a failed collection attempt, according to Skatteverket’s deductions guide.

Confirmed means someone else has confirmed it

Skatteverket’s examples: the customer has gone bankrupt and you, as an unsecured creditor, can’t expect anything from the estate; Kronofogden’s investigation shows the customer has no assets; or the customer has moved abroad with no assets left in Sweden. What they have in common is a document from someone other than you showing the money isn’t coming.

Small invoices get a shortcut. You can treat the loss as confirmed, without proving the customer can’t pay, if all of the following apply, according to Skatteverket:

• the invoice is for less than SEK 1,000
• at least eight months have passed since the payment was due
• you’ve sent a payment reminder
• you’ve sent an inkassokrav (a formal debt collection demand).

If the customer disputes the invoice instead, say because they think the work was poor, it’s a disputed claim, not a bad debt. If you agree on a lower price, you issue a credit note, and that’s what reduces the VAT.

Chase the money, it’s also your evidence

Go after the debt properly, both to get paid and because you’ll need the paper trail later. Between businesses you’re entitled to late payment interest at the reference rate plus eight percentage points unless you’ve agreed otherwise, under section 6 of the Interest Act (räntelagen). You’re also entitled to a fixed late payment compensation of SEK 450 under section 4 a of the Debt Collection Costs Act, without sending any reminders first. It covers your reminder and collection fees up to that amount, so you don’t charge both, as Verksamt explains.

After one or two reminders, the next step is a collection demand or an application for a betalningsföreläggande (a payment order) with Kronofogden. If the customer doesn’t pay and Kronofogden finds nothing to seize, you get exactly the kind of investigation report Skatteverket accepts as proof. Check Kronofogden’s current application fee before you apply.

A worked example, from invoice to confirmed loss

Say you invoiced SEK 50,000 plus 25 percent VAT, so SEK 62,500, in June. At year end on 31 December the customer still hasn’t paid and hasn’t responded to the collection demand. The loss is likely but not confirmed.

At year end you move the receivable to doubtful receivables and write down the amount excluding VAT. Using the BAS chart of accounts: debit 1515 Doubtful trade receivables 62,500, credit 1510 Trade receivables 62,500. Then debit 6352 Expected bad debts 50,000, credit 1519 Write-down of trade receivables 50,000. You leave the SEK 12,500 of VAT alone.

The company’s profit drops by SEK 50,000, and the write-down is deductible in the income tax return as long as you can show why the receivable is doubtful. Keep the emails, reminders and collection demand together with the voucher.

In March 2027, Kronofogden’s report arrives: the customer has no assets. Now the loss is confirmed. You book debit 2611 Output VAT 12,500, debit 1519 50,000, credit 1515 62,500. In the VAT return for that period you reduce sales in box 05 by 50,000 and output VAT in box 10 by 12,500, following Skatteverket’s instructions. The reduction goes in the period the loss was confirmed, not the period you invoiced.

If the customer pays after all, in full or through a dividend from a bankruptcy, you report the VAT again in the period the money comes in.

Do this before the November VAT return

Go through your accounts receivable and pull out everything more than a month overdue. Send a collection demand or apply for a payment order on the invoices you don’t expect to be paid, so the paperwork is ready when you close the year. Don’t reduce the VAT on any of them until you have a document showing the money isn’t coming.