Loan Write Off
Loan Write Off is the process of recognizing that the outstanding principal of a loan is unlikely to be recovered and removing it from the lender’s balance sheet as an asset. This is an accounting action that records the expected loss while the borrower’s legal obligation to repay the loan continues.
In Frappe Lending, Loan Write Off marks the loan as written off, posts the required accounting entries, and supports subsequent recovery or settlement if repayments are received later.
Did You Know?
Writing off a loan does not close the loan permanently. Recoveries can still be collected later through dedicated write-off recovery and settlement processes.
Accessing Loan Write Off
To create a Loan Write Off, navigate to:
Home > Lending > Loan Adjustments > Loan Write OffCreating a Loan Write Off
Follow these steps to write off a loan:
- Open the Loan Write Off List.
- Click on Add Loan Write Off.
- Select the required Loan Account.
- Enter the Principal Amount to be written off.
- Save and submit the document.
Note
Upon submission, the loan is marked as written off and the corresponding accounting entries are created automatically.
Write-Off Validation
Before processing a write-off, the system validates that the write-off amount matches the loan’s outstanding principal balance.
| Validation | Description |
|---|---|
| Outstanding Principal Check | Ensures the write-off amount matches the pending principal balance. |
| Partial Write-Off Prevention | Prevents writing off only a portion of the outstanding principal through this document. |
| Excess Amount Prevention | Blocks write-off amounts that exceed the outstanding principal. |
Types of Loan Write Off
| Type | Description |
|---|---|
| Regular Write Off | Used when a loan is classified as unrecoverable as part of the normal delinquency or write-off process. |
| Settlement Write Off | Used during loan settlement scenarios where write-off forms part of the agreed settlement and closure process. |
Automatic Write-Off
Frappe Lending can automatically create Loan Write Off records when configured conditions are met.
If the loan’s Days Past Due (DPD) exceeds the Days Past Due Threshold For Auto Write Off configured in the Company master, the system can automatically initiate the write-off during the loan classification process.
Automatic Waivers During Write-Off
When a loan is written off, the system can automatically create waiver entries for outstanding non-principal components.
| Automatic Waiver | Description |
|---|---|
| Interest Waiver | Clears outstanding interest associated with the written-off loan. |
| Penalty Waiver | Removes pending penalty amounts during the write-off process. |
| Charges Waiver | Waives outstanding loan charges that remain unpaid. |
These waiver entries are internally marked as write-off waivers and help clear non-principal outstanding components.
Recovery After Write-Off
A written-off loan can still receive repayments. Frappe Lending supports dedicated recovery processes to record collections after the write-off.
| Recovery Method | Description |
|---|---|
| Write Off Recovery | Records repayments received after the loan has been written off. |
| Write Off Settlement | Records settlement-based repayments using dedicated write-off accounting treatment. |
Benefits of Loan Write Off
| Benefit | Description |
|---|---|
| Accurate Financial Reporting | Removes unrecoverable loan principal from the balance sheet. |
| Regulatory Compliance | Supports accounting treatment for non-performing and unrecoverable loans. |
| Automated Processing | Supports automatic write-offs and waiver creation based on configured rules. |
| Recovery Tracking | Allows future recoveries without affecting the integrity of write-off accounting. |
| Controlled Write-Off Process | Validates outstanding principal before allowing a write-off. |
Best Practices
- Verify the outstanding principal before initiating a write-off.
- Configure the Company-level auto write-off threshold according to organizational policy.
- Review automatically generated waiver entries during the write-off process.
- Use settlement write-offs only for approved settlement cases.
- Continue tracking post write-off recoveries using the appropriate recovery documents.
