Bad Debt
Also called: bad debts, irrecoverable debt
What is Bad Debt?
A bad debt is an amount owed by a customer that the business has accepted will not be recovered. It is written off against profit, removing the receivable from the balance sheet.
Why Bad Debt matters
Carrying uncollectable invoices overstates assets and profit at the same time. Writing them off is painful once and honest thereafter.
Bad Debt formula
Bad debt % = Bad debts written off ÷ Credit sales × 100
Rising ratios point at credit policy, not just at difficult customers.
How Bad Debt works in practice
Set a policy — for example, provide against anything past 180 days and write off past a year unless recovery is genuinely in progress. Every write-off is also feedback about the credit decision that created it.
Frequently asked questions
When recovery efforts have realistically ended. Until then, a provision is the better treatment.