AI agents for business finance: what they can and can't do
What AI agents can do in bookkeeping, close, collections and compliance today, where a person must stay in charge, and how to judge a product.
The short answer
A debt is bad when you have good evidence it will not be paid: the customer has closed down, cannot be traced, is insolvent, or recovery would cost more than the debt. Under s.20(1)(h) of the Nigeria Tax Act 2025, bad or doubtful debts incurred in the course of a trade or business are deductible, except debts from related-party transactions, and any amount later recovered is added back to profit when it comes in. Keep invoices, delivery proof, reminders and demand letters as evidence.
When is a debt bad?
Late is not the same as bad. Write a debt off when the evidence shows it is very unlikely to be paid, for example:
- The customer's business has closed and the owner cannot be reached.
- The customer has gone into liquidation or bankruptcy.
- You have sent reminders and a formal demand, and there is no response or a refusal with no basis.
- The amount is small enough that further recovery would cost more than you would collect.
- A court has given judgment and enforcement has failed.
A debt that is in doubt but not yet hopeless is a doubtful debt. The Act allows a deduction for doubtful debts only where they are estimated in accordance with generally accepted accounting principles and proven to the satisfaction of the tax authority, so the evidence bar is higher.
The accounting entries
Example only. A customer owes ₦850,000 for goods supplied in March 2026. After reminders, a demand letter and confirmation that the business has closed, you write it off in October.
| Event | Debit | Credit | ₦ |
|---|---|---|---|
| Write-off | Bad debts expense (P&L) | Trade receivables (customer account) | 850,000 |
| Allowance for a doubtful debt, if used instead | Doubtful debts expense | Allowance for doubtful debts | Estimated amount |
| Later recovery of part | Bank | Bad debts recovered (income) | Amount received |
The write-off removes the debt from your balance sheet so you are no longer reporting money you will not get, and the expense reduces this year's profit. Keep the customer's account and history; a debt written off can still be pursued.
The tax treatment
Section 20(1)(h) of the Nigeria Tax Act 2025 lists among allowable deductions bad or doubtful debts incurred in the course of a trade or business. As the text reads:
- The debt must arise from your trade or business, such as goods sold or services rendered, not a personal loan to a friend.
- Bad debts must arise during the basis period, and debts from related-party transactions are excluded. PwC's summary (reviewed May 2026) also notes the related-party exclusion.
- Under s.20(2)(a), any amount previously deducted for the same debt is taken off, so you cannot claim twice.
- Under s.20(2)(b), amounts recovered on debts previously written off or deducted are added to profits in the period of recovery.
Worked example
Example only. A company that is not a small company has profit of ₦12,000,000 before the write-off and no other adjustments. Writing off the ₦850,000 brings taxable profit to ₦11,150,000. At the 30% company income tax rate in s.56, tax falls by ₦255,000 (30% × ₦850,000). If the 4% development levy applies to the company, as PwC describes, it falls by a further ₦34,000. If ₦300,000 is recovered the next year, that ₦300,000 is added to that year's profit.
A small company pays 0% company income tax, so the write-off saves no tax now, but it still belongs in the accounts so they show a true position. For a business name, the write-off reduces the profit the owner is taxed on personally.
If the original invoice included VAT you had already paid over, ask your accountant whether any VAT adjustment is available; we have not confirmed a bad-debt VAT relief rule under the 2025 Acts.
Doubtful debts in practice
Some businesses set aside an allowance for debts that may not be paid, rather than waiting for each to become hopeless. That is sound accounting, but for tax the Act requires doubtful debts to be estimated under generally accepted accounting principles and proven to the tax authority's satisfaction. A blanket percentage of all debts, with no review of each customer, is hard to support. Review each large debt by name, note why it is doubtful, and keep that note with the accounts.
Try recovery first
- Send a statement of account and a reminder on the due date.
- Call, then send a written reminder after a week or two.
- Send a formal letter of demand giving a final date.
- Consider small claims. In Lagos, the Small Claims Court Practice Direction 2023 covers liquidated money demands of up to ₦5,000,000 excluding interest and costs, and requires a letter of demand on Form SCA 1, giving 14 days, before a claim. Check the rules in your own state.
- Record each step with its date; this is also your evidence for the write-off.
Records to keep
- The invoice, the order or contract, and proof of delivery.
- Statements, reminders, emails, messages and the demand letter.
- Evidence of the customer's closure or insolvency, and any court papers.
- The approval to write off, signed by the owner or a director, with the date and reason.
Section 31 of the Nigeria Tax Administration Act 2025 requires records to be kept for at least six years after the year of assessment. To avoid the next bad debt, see a credit sales policy, credit sales record keeping and AI for accounts receivable; the write-off itself shows in your profit and loss statement.
Where Pryme fits
On a Pryme Business Account, the Finance agent can prepare an aged list of customer debts and draft reminders; a person approves before anything is sent above the ceiling you set, and every action is recorded.
Questions people ask
When can I write off a bad debt in Nigeria?
When evidence shows it is very unlikely to be paid, such as the customer closing down, insolvency, or failed recovery after reminders and a formal demand.
Is bad debt tax deductible in Nigeria?
Yes, if it was incurred in the course of a trade or business and is not from a related-party transaction, under s.20(1)(h) of the Nigeria Tax Act 2025. Doubtful debts must be estimated under accepted accounting principles and proven.
What happens if a written-off debt is later paid?
The amount recovered is added to profits in the period you receive it, under s.20(2)(b) of the Act, and recorded as bad debts recovered.
How do I record a bad debt in my books?
Debit a bad debts expense account and credit the customer's receivable account for the amount written off, with a signed approval and the recovery evidence on file.
Sources
- Nigeria Tax Act 2025 (gazette text: s.15, s.20, s.21, s.56) · accessed Oct 2026
- PwC Worldwide Tax Summaries: Nigeria, corporate deductions (last reviewed 29 May 2026) · accessed Oct 2026
- PwC Worldwide Tax Summaries: Nigeria, taxes on corporate income (last reviewed 29 May 2026) · accessed Oct 2026
- Nigeria Tax Administration Act 2025 (s.31, s.57, s.102) · accessed Oct 2026
- Lagos State Small Claims Court Practice Direction 2023 (Lagos MSME Promotion Board copy) · accessed Oct 2026
This article is general information, not financial, legal or tax advice. Products described are provided under the terms on this site and are subject to regulation and eligibility.