Bad Debt

What is 'Bad Debt' :

Bad debt is debt that is not collectable and therefore worthless to the creditor. This occurs after all attempts are made to collect on the debt. Bad debt is usually a product of the debtor going into bankruptcy or where the additional cost of pursuing the debt is more than the amount the creditor could collect. This debt, once considered to be bad, will be written off by the company as an expense.

BREAKING DOWN 'Bad Debt' :

Most companies make sales on credit as it generally allows them to increase their sales, even though some sales are to customers with less than desirable credit. Companies that do make credit sales will estimate the amount of sales they expect to lose to bad debt, which is found in the allowance for doubtful accounts.
A debtor with a history of bad debts will see their credit rating decline, which makes it difficult for the debtor to access any additional form of credit.

Test Your Skills With Trading Challenges

Put your trading skills to the test with our free Stock Simulator. The ideal platform to get your financial feet wet! Submit trades in a virtual environment before you start risking your own capital.Click here to sign up today and start interacting with other traders from diverse backgrounds and experiences, and learn the methods behind their trades to become a better investor.