Bad Debt
A trade debt judged unlikely to ever be collected, which is written off against profit once recovery is no longer realistic.
What it is
A bad debt is money owed by a customer that the business no longer expects to recover, often because the debtor is insolvent, untraceable or has exhausted all collection avenues. At that point the amount is written off, removing it from receivables and reducing reported profit for the period.
Reducing the damage
Good credit control limits bad debts: firm credit policy, prompt dunning, and early referral of stubborn accounts. Once a debt looks doubtful but is not yet hopeless, it may be carried as a provision for doubtful debts rather than written off straight away.
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