Bad Debts on Exports: What to Do When a Foreign Client Never Pays

When a foreign client stops paying, your export invoice does not simply disappear from the system. It sits as an open entry in EDPMS against your AD bank until the money arrives or the bank closes it some other way. The route to a write-off runs through your AD bank, and it rests on documentation and honesty, not on quietly ignoring the invoice.

Key takeaways

• An unpaid export invoice stays open in EDPMS. It will not close on its own.
• Before talking about write-off, use the bank's power to extend the realisation period if there is still a real chance of payment.
• Whether and how the bank can close an unrealised entry as written off depends on the current RBI text and the bank's own policy. Ask early.
• Build a paper trail from the first missed due date: reminders, replies, legal notices, insolvency documents.
• A write-off for FEMA purposes is separate from how you treat the loss in your books and tax returns. Your CA handles the second part.

How an unpaid export becomes a FEMA problem

Under the 2026 export regulations, the full value of a service export must be realised within 9 months from the invoice date, or 12 months where the invoice is in Indian rupees. Your EDF told the bank what to expect. When the money does not come, the EDPMS entry stays open past the deadline.

An open entry is not just an untidy record. It can affect your relationship with the bank, block the eBRC for that invoice and, if it is one of many, raise questions about your compliance generally. Persistent unrealised exports can attract FEMA penalties under Section 13. So the goal is to get every invoice to a clear end state, either paid or formally dealt with.

Stage one: chase and extend

Most "bad debts" start as slow payers. Treat them that way until the evidence says otherwise.

Months 1–6 after invoice: routine follow-ups. Polite reminders at due date, then at 15 and 30 days overdue. Keep every email.

Months 6–8: escalate. Speak to someone senior at the client, propose a payment plan, consider a formal demand letter. If you think payment will come but after the deadline, write to your AD bank for an extension.

The bank can extend the realisation period on a reasoned request. Explain the client's situation, attach your correspondence and give a realistic expected date. Our realisation extension request letter gives you a starting format, and the article on requesting an extension covers what to include.

Stage two: recognising a genuine bad debt

At some point you have to accept the money is not coming. Common signs:

• the client has entered insolvency, administration or liquidation in its home country;
• the client has stopped responding entirely for months despite formal notices;
• the client disputes the work and the amount is too small to justify foreign litigation;
• the client has been dissolved or struck off.

Each of these leaves evidence. Gather it while it is still easy to find.

Stage three: talking to your AD bank about write-off

Write to your bank before the realisation deadline if you can, or as soon as you know. The letter should cover:

1. The invoice details and EDF reference.
2. What was received, if anything, and when.
3. What went wrong, in plain words.
4. What you did to recover the money.
5. Why you believe recovery is not possible or not worth the cost.
6. A request for guidance on closing the entry.

The 2026 Regulations and the companion RBI Directions for banks set the framework, and the bank applies its own policy within it. We are not going to guess at specific limits or conditions here, because the details that matter sit in the current RBI text and your bank's written policy. Ask the bank directly what it needs, and whether it can act itself or whether the matter needs to go further. RBI amended some provisions on 22 September 2026, so make sure any summary you rely on is current.

This is general information, not legal or tax advice. If the amount is material, involve your CA from the start.

A worked example

Here is a fictional scenario. Banyan Consulting LLP, Gurugram, invoices Ferncliff Retail Ltd (UK) GBP 14,500 (about ₹15,40,000) on 15 November 2026 for a market-entry study. Ferncliff pays GBP 4,000 in January 2027, then goes silent. In May 2027, Banyan learns Ferncliff has entered administration.

What Banyan should do:

• May 2027: file a claim with the administrator and keep the acknowledgement.
• June 2027: write to its AD bank, about six weeks before the 15 August 2027 deadline, explaining the partial receipt (FIRA attached) and the administration, and asking how the remaining GBP 10,500 should be handled.
• July 2027: provide the administrator's notice and its correspondence trail if the bank asks for them.
• In its books: take its CA's advice on the accounting and tax treatment of the shortfall separately.

The bank's response is its own call. What Banyan controls is timing and evidence, and with this approach both are in good shape.

What not to do

• Do not leave it open and hope. An entry that ages silently is harder to explain later.
• Do not issue a credit note to make the number go away without discussing it with the bank and your CA. A genuine commercial discount is different from writing off a debt. See our piece on credit notes and short payments.
• Do not settle with the client through an unofficial channel, for example receiving the money into a relative's foreign account. That creates far bigger problems.
• Do not exaggerate. If the bank asks for proof of insolvency and the client is merely slow, say so.

The books and tax side, briefly

A FEMA write-off and an accounting or tax write-off are different things. Your GST position on the original zero-rated export invoice, the treatment of any IGST refund, and whether the loss is deductible for income tax all depend on your facts and current law. The EDF does not change any of these obligations. Ask your CA to look at the whole picture once the bank has responded.

Frequently asked questions

Can I write off an unpaid export invoice myself?

You can recognise the loss in your books with your CA's advice, but the EDPMS entry is held by your AD bank and needs the bank to close it. Write to the bank, explain the situation and ask what it needs. Do not assume the entry closes because your accounts show a write-off.

Should I ask for an extension or a write-off first?

If there is a real chance of payment, ask for an extension of the realisation period first. Move to a write-off request only when the evidence shows recovery is unlikely or uneconomic. Banks generally prefer to see that you tried to recover before giving up.

What documents help a write-off request?

Your invoice, EDF details, contract, dated reminders, any demand or legal notice, and proof of the client's insolvency, dissolution or dispute. Partial payments should be backed by FIRA or bank advice. The clearer the trail, the easier the bank's decision.

Does a bad debt affect the GST zero-rating on the original invoice?

That depends on your facts and the conditions in Section 2(6) of the IGST Act, one of which is receipt of payment in convertible foreign exchange. Ask your CA how an unrealised export affects your GST position and any refund already claimed.

Will one unpaid client get me penalised under FEMA?

A single genuine bad debt, reported honestly and handled through your bank, is a very different thing from a pattern of ignored entries. Penalties under Section 13 of FEMA are possible for non-compliance, which is exactly why prompt, documented action matters.

Bottom line

A foreign client who never pays is painful, but the FEMA side is manageable if you chase early, extend when there is hope and document everything before asking your bank about closure. Start with a clear letter, and use the free bank letter templates to draft your extension or write-off request today.