Recoveries and credit refunds
Two movements look alike on a transaction list. Both read as money coming back. They are not the same thing, and they do not belong to the same story.
- A recovery is money a customer pays against a claim you have already written off. It is income to you.
- A credit refund is money you hand back to a customer who is in credit. It is a debt you owe them.
Which one am I looking at
Ask whose money it is.
| Ask | Answer | What it is |
|---|---|---|
| Is the customer paying down something they owe you? | Yes | A recovery |
| Are you paying back something you hold for them? | Yes | A credit refund |
The transaction list names them apart. A recovery appears as Recovery Received. A refund appears as Credit Refunded. See reading the transaction list.
Receiving a recovery
A recovery is not something you select. Nobody presses a button for it.
The money arrives as a bank deposit that matches the claim’s payment references, and the system records it on its own. So this section explains a line you find on the transaction list, rather than a task you perform.
The claim itself, the salvage account it sits on, and the references that route the payment there are covered in writing off a bad debt.
A recovery values on the day the money arrives. It is already in your bank, so there is no rail to wait for. See value dating.
How a receipt is split
A receipt can be larger than the claim it is paying. The system never bounces money the bank has already taken in, so it splits the receipt instead.
flowchart TD
A[Receipt arrives] --> B{Larger than the claim?}
B -- No --> C[All of it settles the claim]
B -- Yes --> D[Up to the claim settles the claim]
D --> E[The excess is held as customer credit]
C --> F{Claim and credit both zero?}
E --> F
F -- Yes --> G[The account closes as recovered]
F -- No --> H[The account stays open]Only the part that settles the claim is income. The excess is money you now owe the customer, and it waits on the account as Customer Credit until you refund it.
A worked example
Alex owes Woodgrove Bank a claim of 1,100 on a written-off loan.
| What arrives | Recovery income | Customer credit | Claim left | Account |
|---|---|---|---|---|
| 400 | 400 | 0 | 700 | Stays open |
| 1,100 | 1,100 | 0 | 0 | Closes as recovered |
| 1,400 | 1,100 | 300 | 0 | Stays open, 300 owed to Alex |
The 1,400 case is the one that catches people. The claim is settled, but the account does not close, because Woodgrove still owes Alex 300.
The same deposit twice
If the bank file redelivers the same deposit, nothing posts twice. A receipt that was split into two lines redelivers as a whole or not at all, so you never get the income leg without the credit leg.
Why a recovery is income, not a reversal
This is the part your financial director cares about.
A recovery does not unwind the write-off. The write-off was an accounting judgment made in an earlier period, and it stays made. The money you collect afterwards is income in the period you receive it.
Three consequences follow.
- Your impairment expense does not move. A recovery never reduces the cost you booked when you wrote the loan off. If it did, a good collections month would flatter a prior period.
- Recoveries have their own income line. They report as bad-debt recovery income, separately from interest and fees, so the recovery book is visible on its own.
- There is no principal-and-interest split. Once a loan is derecognised there is nothing left to split. Every cent recovered is income, whatever the customer thought they were paying.
This follows IFRS 9 §5.4.4, and the platform’s compliance register carries the row IFRS 9 §5.4.4 — write-off (provisioned bad debt) and post-write-off recoveries.
What is not claimed
Recognition is on a cash basis. Two things follow, and neither is a defect.
- The claim earns no interest. Post-judgment interest is not calculated. A claim only grows by the recovery costs charged to it.
- Charging a recovery cost books no income. Adding a legal or tracing fee grows what the customer owes. It does not book revenue until cash arrives.
Refunding a credit
Where a customer is in credit, you return the money. Select Refund Customer Credit on the account.
- Open the account and select Refund Customer Credit.
- Type the Amount.
- Choose the account to Pay To.
- Confirm.
Where the account holds no credit, the option is greyed out and tells you why: no customer credit is held on this account.
The amount you type is what pays out. Read the credit held on the account’s balances before you type it — the customer is owed exactly that, and no more.
The refund leaves on the payment rail like any other payout, so it settles on the rail’s own timing. See how a payment picks its rail.
A worked example
Alex’s 1,400 payment left 300 of customer credit and a settled claim. Woodgrove refunds the 300 to Alex’s bank account. The credit reaches zero, and the account closes as recovered.
The refund moves no income at all. You are returning a liability, not giving up revenue.
Why the refund gates the closure
An account with a credit on it cannot close. That is deliberate.
Closing it would leave money you owe a customer sitting on a dead record, where nobody looks for it. Forcing the refund first means the money either reaches the customer or stays visible on an open account.
What depends on your configuration
Whether a written-off product opens a claim at all, where recoveries land in your general ledger, and which staff may refund a credit are all set by your organisation. So is the limitation period on a claim. Neither of these two movements needs a second approver by default — see countersign for how your organisation adds one.