written by khatabook | November 9, 2022

What are the Differences between Write-Off and Waive Off?

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The terms "write-off" and "waive off" are often used interchangeably, but there is a subtle difference between the two.

A write-off is when a company or individual no longer pursue debt or assets. This typically happens when the debt is too high, and it would be unwise to continue trying to collect it. For example, a company may write off lousy debt if it is clear that the customer will never be able to pay it back.

On the other hand, a waiver is when a company or individual agrees to forgo a right or privilege. This is typically done as a concession or as a settlement agreement. For example, a company may waive its right to interest on late payments to encourage the customer to pay the debt.

Did you know? In the past ten years, banks in India have written off bad loans, also known as non-performing assets (NPAs), totaling a staggering Rs 11,68,095 crore.

Meaning of Write-Off Loan 

A write-off loan is a type of loan where the borrower agrees to have the loan amount written off if they default on the loan. Lenders typically use this loan to minimise losses if a borrower defaults on their loan.

The terms of a write-off loan will vary depending on the lender, but typically the loan amount will be written off after a certain number of days or months have passed without the borrower making a payment. In some cases, the write-off may be for the entire loan amount, while in others, the lender may only write off a portion of the loan.

The main advantage of a write-off loan for the borrower is that it can help them to avoid having a negative mark on their credit report. However, it is essential to note that the write-off will still be reported to the credit bureau, so it may not help the borrower's credit score as much as they would hope.

The main disadvantage of a write-off loan for the borrower is that they will still owe the lender the entire loan amount, even though it has been written off. This means that the borrower will still be responsible for making payments on the loan and may even be subject to legal action if they default on the loan.

Overall, a write-off loan can be a good option for borrowers who risk defaulting on their loans. However, it is essential to understand the terms of the loan before agreeing to it, as it can still significantly impact the borrower's finances.

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Meaning of Waived Off

In business, a waiver is relinquishing a right or privilege. When a party waives-off a right, they give up the opportunity to take advantage of that right at a later time. In some cases, a waiver may be implied by the actions of the parties involved. If someone signs a contract and breaks the terms of that contract, they may be considered to have waived their right to enforce the agreement. 

There are many reasons why a party might waive-off their rights. In some cases, moving forward with a business transaction may be necessary. For example, if two parties are negotiating a contract and one party wants to change a clause, the other party may agree to the change in exchange for the first party waiving their right to sue if the contract is breached. In other cases, a party may waive their rights as a settlement agreement. For example, if two parties are involved in a lawsuit, they may agree to drop the case and waive their right to sue each other in the future in exchange for each party paying their legal fees. 

It's important to note that not all rights can be waived. For example, a party cannot waive their right to due process or their right to a fair trial. Additionally, some requests may only be waived in certain circumstances. For example, a party may only be able to waive their right to a jury trial if they do so in writing and with the court's approval.

Difference Between Write-Offs and Waivers

A loan write-off is when a lender decides that a borrower will not be able to repay a loan and therefore writes the loan off as a loss. This differs from a loan waiver when a borrower is released from the obligation to repay a loan. 

There are a few key differences between loan write-offs and loan waivers:

1. A loan write-off is decided by the lender, whereas a loan waiver is usually agreed upon by both the borrower and the lender.

2. A loan write-off means that the borrower will not have to repay the loan, whereas a loan waiver usually means that the borrower will still have to repay the loan at a reduced rate.

3. A loan write-off will usually result in the borrower's credit score being negatively affected, whereas a loan waiver will usually not impact the borrower's credit score.

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When is It Appropriate to Use a Write-off or Waiver?

There is no definitive answer to this question, as it depends on the specific situation and the special write-off or waiver being considered. However, as a general rule of thumb, it is usually appropriate to use a write-off or waiver when:

  • There is a significant financial benefit to be gained
  • The write-off or waiver will not harm other people or businesses
  • The write-off or waiver is allowed under the relevant laws and regulations
  • The write-off or waiver is in line with the company's ethical standards

It is essential to weigh up all of the potential implications before using a write-off or waiver, as there can be both positive and negative consequences. For example, a write-off or waiver may help a company to reduce its tax liability, but it may also result in the company missing out on significant revenue.

What Are the Advantages and Drawbacks of Write-Offs and Waivers?

The consequences of write-offs and waivers can be significant.

  • First, write-offs and waivers can reduce the taxes a business owes. This can be a significant advantage, particularly for small businesses.
  • Second, write-offs and waivers can reduce the income businesses report on their financial statements, making a company appear more profitable than it is.
  • Third, write-offs and waivers can create opportunities for fraud and abuse. For example, a business owner could intentionally overstate the value of inventory to get a more significant write-off.
  • Fourth, write-offs and waivers can be difficult to obtain, and businesses must go through a lengthy and complicated application process.
  • Finally, write-offs and waivers can have negative consequences for the economy as a whole. When businesses can reduce their taxes, it can reduce government revenue and increase the deficit.

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Conclusion

There are a few critical differences between write-offs and waive-offs. Most notably, a write-off is a permanent reduction in the value of an asset, while a waiver is a temporary relinquishment of a right or privilege. Write-offs typically occur when a purchase is damaged beyond repair or no longer has any value. For example, if a company's inventory is damaged in a fire, the company may write-off the value of that inventory. On the other hand, waive-offs are often used as a negotiating tactic. For example, a landlord may waive a tenant's late fees to agree to a new lease.

In both cases, the entity giving up the asset or privilege does so voluntarily. However, there are some critical distinctions between the two terms. Write-offs are typically final, while waive offs are usually only temporary. Additionally, write-offs generally involve a loss of value, while waive-offs do not necessarily result in a loss.

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FAQs

Q: How can I waive my home loan?

Ans:

When a borrower cannot pay off the entire loan amount; then, the lender offers the borrower a discounted rate to pay towards the overdue amount of the loan. The remaining amount is then waived off.

Q: When should you write off?

Ans:

write-off is mandated when an account receivable cannot be collected. It usually happens when inventory is obsolete when there is no longer any use for a fixed asset, or when an employee leaves the company and is unwilling to pay the company back for a pay advance.

Q: What is an example of a write-off?

Ans:

Expenses are anything purchased while running a business for profit, and the cost of these items is deducted from revenue to decrease the total taxable income. Write-offs include vehicle expenses and rent or loan payments.

Q: What is a write-off in banking?

Ans:

A write-off is an accounting action that reduces the value of an asset while simultaneously debiting a liabilities account. It is primarily used in its most literal sense by businesses seeking to account for unpaid loan obligations, unpaid receivables, or losses on stored inventory.

Q: What happens when a loan is written off?

Ans:

The primary difference between a write-off and a waive-off of loans is that a loan write-off is an action taken by the lender when the chances of loan recovery are almost zero, and the bank wishes to maintain a clear record of the unrecovered loan amount in their balance sheets.

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The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.