Receivables Ageing, Collection and Expected Credit Losses in Egypt

Executive summary

• An ageing report classifies each customer's balance by how far it is genuinely overdue, measured from the due date, not the invoice date, and is the daily collection tool before it ever becomes an input to the accounting provision.
• A working collection process starts before the sale: a written credit limit and payment terms, then a regular statement, then graduated follow-up ending in legal action where needed, with every step documented.
• Egyptian Accounting Standard No. 47, "Financial Instruments" (added to the Egyptian Accounting Standards by the Minister of Investment and International Cooperation's Decision No. 69 of 2019), always requires the loss allowance on trade receivables without a significant financing component to equal lifetime expected credit losses, with no need to track a significant increase in credit risk.
• The standard allows this allowance to be measured in practice through a provision matrix built on historical loss rates by ageing band.
• Writing off a debt means directly reducing its gross carrying amount once there is no reasonable expectation of recovery — a distinct step from any legal waiver of the debt.
• A bad debt is deductible for income tax once written off the books, on a report from a registered accountant that the conditions of article 28 are met; since Law No. 151 of 2026 these include serious collection measures and 12 months of non-payment past the due date, with an exception for debts not exceeding EGP 10,000 each, within 1% of the total debtors' balance.

Reading the ageing report

An ageing report spreads each customer's balance across time bands measured from the due date, not the invoice date: not yet due, 1–30 days, 31–60, 61–90, 91–120, and over 120 days. Payment terms differ enough between customers that the invoice date alone is misleading.

Reading it well rests on two measures: the share of the balance more than 90 days overdue, and how each customer moves between bands month to month. A customer sliding from "not yet due" into arrears every month is a different case from one whose delay has settled at a single band and gone no further. A recurring practical error is stopping at the total overdue balance without tracking its movement between bands, which misses the deterioration signal early.

Building a collection process that works

Effective collection starts before the sale: a written credit limit and payment terms for each customer, reviewed regularly rather than left implicit. A regular statement then reaches the customer before any demand is made, followed by graduated follow-up — a friendly reminder at the due date, a formal notice once a set grace period passes, and escalation to legal action once the friendly approach has failed.

Every step should be documented: the date and content of each contact, every statement sent, every written demand. This record is what the business draws on to estimate the historical loss rates behind its provision matrix, and it supports any later legal action. The serious measures the tax law requires before a bad debt can be deducted are listed in the law itself, and reminders, statements and written demands are not among them (below).

The accounting measure: the simplified approach to expected credit losses

Egyptian Accounting Standard No. 47, "Financial Instruments", was added by the Minister of Investment and International Cooperation's Decision No. 69 of 2019 to the Egyptian Accounting Standards issued under Decision No. 110 of 2015. Later amendments have not touched the trade receivable rules below: Appendix C, added by Prime Minister's Decision No. 4575 of 2023, concerns Egyptian government debt instruments in local currency and local-currency bank current accounts and deposits maturing within one month.

The general rule measures the loss over 12 months unless credit risk has increased significantly since initial recognition, moving measurement to the full lifetime loss. Paragraph 5.5.15 exempts trade receivables from that tracking: "an entity shall... always measure the loss allowance at an amount equal to lifetime expected credit losses" for amounts receivable from trade debtors without a significant financing component, regardless of any change in credit risk. This is what the standard calls the simplified approach.

The provision matrix: an illustrative example

The standard's own application guidance (Appendix B), paragraph B5.5.35, offers the provision matrix as a practical expedient for measuring expected credit losses: "an example of a practical expedient is calculating the expected credit losses on trade receivables using the provision matrix", at fixed rates that vary with days past due. Its own illustration uses: 1% if not yet past due, 2% if less than 30 days past due, 3% if between 30 and 90 days past due, and 20% if between 90 and 180 days past due.

Applying these rates — the standard's example, not a binding rule — to an assumed balance:

An entity's actual matrix is built on its own historical loss rates, adjusted for current and forward-looking conditions, not on the figures in this illustration.

Writing off a bad debt

The provision grows as collection prospects deteriorate; the write-off is a later, distinct step. Under paragraph 5.4.4, "an entity shall directly reduce the gross carrying amount of a financial asset when the entity has no reasonable expectations of recovering a financial asset in its entirety or a portion thereof", and the write-off constitutes a derecognition event. It reflects the absence of a reasonable expectation of collection — not a legal waiver of the debt, and the right to claim it is not lost if circumstances later change.

The tax treatment since Law No. 151 of 2026

Article 28 of Income Tax Law No. 91 of 2005 allows the deduction of bad debts that the taxpayer has written off the business's books and accounts, on a report from an accountant on the roll of accountants and auditors confirming four conditions: the business keeps regular accounts; the debt relates to its activity; the amount corresponding to the debt was previously included in its accounts; and it has taken serious measures to collect the debt and has been unable to collect it after 12 months from its due date. That last condition is item 4 of the first paragraph as replaced by Law No. 151 of 2026, and serious measures under it are any of: obtaining a payment order where the law allows one, a first-instance judgment ordering the debtor to pay the debt, or claiming the debt in proceedings to enforce a bankruptcy judgment against the debtor or a protective composition the debtor has concluded.

Bad debts not exceeding EGP 10,000 each are excepted from item 4, provided that total bad debts do not exceed 1% of the taxpayer's total debtors' balance at the end of the tax year, as the executive regulations provide; detail is in the income tax amendments under Law No. 151 of 2026.

What this requires

• A monthly ageing report by customer and time band, tracking how each customer moves between bands, not only the total overdue balance.
• A written credit policy — limits and payment terms — fixed before the sale and reviewed regularly.
• Documentation of every collection step — statements, reminders and notices — since it is the basis of the loss rates in the provision matrix and supports any later legal action.
• A provision matrix built on the entity's own historical loss rates, segmented by customer group where loss patterns differ significantly between groups.
• Regular review of the matrix's rates against actual experience and economic outlook, rather than fixing them permanently.
• Keeping the accounting write-off separate from the tax deduction: the standard requires the write-off once there is no reasonable expectation of recovery, while the deduction requires, beyond removing the debt from the books, a registered accountant's report that the article 28 conditions are met.

The firm's Accounting & Bookkeeping Department prepares ageing reports, builds the provision matrix from the entity's own data, and reviews the documentation for the tax deduction of bad debts.

Mahmoud Nassef — Chartered Accountant (Egyptian Register), Founder Partner

Member, Egyptian Society of Accountants & Auditors
Member, Egyptian Tax Society
Member, Egyptian Society for Public Finance and Taxation

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Disclaimer: This bulletin is prepared for general information on the legislation in force at the date of its publication. It does not constitute a professional opinion or tax or legal advice on any particular matter, and it should not be relied upon in place of advice based on an examination of the circumstances of each case. Nassef & Partners International accepts no responsibility for any action taken, or refrained from, in reliance on its contents. The positions stated remain subject to subsequent legislation and decisions.