Meaning
Bad debt refers to money owed to a business that is unlikely to be paid back. It’s a significant concern for financial health.Core Definition
It is an amount receivable deemed uncollectible and subsequently written off as an expense. This often happens when a customer fails to settle their dues for goods or services provided on credit.Common Causes
Key causes include customers facing bankruptcy, financial difficulties, or disputes over the quality of services. Inadequate credit assessment before extending credit can also contribute.Business Impact
Bad debt directly reduces a company’s net profits and negatively impacts its cash flow. Businesses often create a provision for bad debt to account for these expected losses.Author
