Irrecoverable debts and provision for doubtful debts — practice question

NT began trading on 1 September 2020. Every sale is made on credit, and customers must pay within 25 days. On 5 May 2021, LW, a trade receivable, was declared bankrupt and $600 was written off as irrecoverable on that date. Besides the irrecoverable debt from LW, further irrecoverable debts of $4100 were written off in the year ended 31 August 2021. Trade receivables at 31 August 2021 were $91500 and NT chose to set up a provision for doubtful debts at 5% of trade receivables. In the financial year ended 31 August 2022, PB, a trade receivable owing $7000, had been declared bankrupt. On 17 July 2022, NT received a cheque for $2500 in full settlement of the debt. The rest of the debt was written off as irrecoverable. Other irrecoverable debts of $8400 were written off at 31 August 2022. The remaining trade receivables at 31 August 2022 were $110000 and NT decided to keep the provision for doubtful debts at 5% of trade receivables. NT is worried about the rise in irrecoverable debts in the second year of trading. To cut irrecoverable debts, he plans to adopt one of the two options below. Option 1: To charge interest on all debts not paid within his standard terms of payment of 25 days. Option 2: To stop supplies to all customers who do not pay within his standard terms of payment of 25 days.