An unpaid or uncollectible debt that is unlikely to be recovered.
Bad debt refers to money owed by customers or clients that is unlikely to be collected, resulting in a financial loss for a business. It typically occurs when customers fail to make payments on outstanding invoices, become insolvent, or declare bankruptcy. Small business owners often encounter bad debt when dealing with delinquent accounts or customers who are unable or unwilling to fulfill their payment obligations. To mitigate the impact of bad debt, businesses may establish provisions or reserves, write off the uncollectible amounts as expenses, or employ debt collection strategies. Effectively managing bad debt is crucial for maintaining cash flow, profitability, and financial stability.