What is Bad Debt?

A bad debt is money owed to you that you have been unable to collect. Bad debt occurs when you provide a product or service on credit and the customer never pays, leaving you without any income from the sale. Accounts are considered “bad debt” once it becomes delinquent, and assumed to be uncollectible.

Traditionally, an organization sets a timeline on collecting the accounts themselves. Upon being deemed delinquent and termed “bad debt” the organization utilizes a collection agency or continues to track the account themselves. After this is unsuccessful they choose to pursue another collection agency, write it off as a bad debt expense, or sell the account.