What is the simplified approach?
For trade receivables and contract assets that do not contain a significant financing component, IFRS 9 requires the loss allowance to equal lifetime expected credit losses from the day the receivable is recognised. There is no need to track whether credit risk has increased, which is what makes it simple. Companies may also choose the simplified approach as a policy for receivables with a financing component and for lease receivables. A provision matrix is a practical way of applying it, explicitly mentioned in IFRS 9.
How do you build a provision matrix?
Group the receivables
Segment by shared credit risk characteristics, such as customer type, geography or product. Retail customers and large corporates usually need separate matrices.
Choose the ageing buckets
Current, then bands of days past due, such as 1 to 30, 31 to 60, 61 to 90 and over 90.
Calculate historical loss rates
For each bucket, compare the balances at past year ends with the amounts later written off. Use a period long enough to be representative.
Adjust for forward-looking information
Raise or lower the rates for how current and forecast conditions, such as unemployment, interest rates or the customer sector's health, differ from the historical period.
Apply the rates to today's balances
Multiply each bucket's balance by its adjusted rate and add up the results.
A provision matrix example
A distributor's history shows the loss rates below. Because economic forecasts are weaker than in the historical period, it increases every rate by 10%.
| Ageing | Receivables (CU) | Historical loss rate | Forward-looking rate | Expected credit loss (CU) |
|---|---|---|---|---|
| Current | 400,000 | 0.8% | 0.88% | 3,520 |
| 1 to 30 days | 60,000 | 2.5% | 2.75% | 1,650 |
| 31 to 60 days | 20,000 | 6.0% | 6.60% | 1,320 |
| 61 to 90 days | 12,000 | 15.0% | 16.50% | 1,980 |
| Over 90 days | 8,000 | 45.0% | 49.50% | 3,960 |
| Total | 500,000 | 2.49% | 12,430 |
The allowance at the start of the year was CU 10,000, so the year's impairment charge is CU 2,430: Dr Impairment loss, Cr Loss allowance. Notice that current receivables, which nobody would have provided for under the old rules, carry CU 3,520 of the allowance.
Can you build it in Excel?
Yes. The ECL provision matrix (Excel) derives the historical loss rates from three years of balances and write-offs, applies your forward-looking adjustment to the current ageing, and produces the charge for the year and the journal entry. It also includes a three-stage calculator for loans.
What do auditors look for?
- Evidence for the forward-looking adjustment, linked to specific economic indicators, not a round number added by habit.
- Segments that reflect real differences in credit risk.
- Specific provisions for individual customers known to be in difficulty, on top of the matrix, without double counting.
- Consistent treatment of credit insurance and collateral.
How does this differ from the old bad debt provision?
Under IAS 39, companies provided only for receivables with objective evidence of impairment, such as a customer in liquidation. The IFRS 9 provision matrix covers every receivable, including those not yet due, and looks forward. The allowance is usually higher and moves earlier when the economy weakens. For the general approach used for loans, see expected credit losses: the three stages.
Need help applying the standards?
Our Chartered Accountants help finance teams and students apply IFRS and US GAAP to real transactions.
Questions people ask
What is a provision matrix under IFRS 9?
A table of loss rates by ageing bucket, based on historical losses adjusted for forward-looking information, applied to current receivables to measure lifetime expected credit losses.
How do you calculate a bad debt provision under IFRS 9?
Group receivables, calculate historical loss rates by ageing bucket, adjust them for current and forecast conditions, and multiply by the balances at the reporting date.
Is the simplified approach mandatory for trade receivables?
Yes, for trade receivables and contract assets without a significant financing component.
Do current receivables need a provision under IFRS 9?
Yes. Expected credit losses apply to all receivables, including those not yet due.
Sources
Every fee, date and rule on this page was taken from these official and primary sources.
Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.
Related guides
More in IFRS 9
This guide is general information. It is not tax or legal advice for your situation.