Question

What is Bad Debt? How it effect a business?​

Answer 1

In most cases a bad debt occurs when you have extended credit terms to an unsuitable customer or when the customer's circumstances change. One of the most obvious consequences of experiencing a bad debt is that a business' cash flow is disrupted, resulting in lowered profitability.

Answer 2

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• Simply put, a bad debt is a type of expense that occurs after repayment by a customer (when credit has been extended) is no longer considered to be collectable. In other words, bad debt is an irrecoverable receivable.

• Bad debt is a contingency that must be accounted for by all businesses that extend credit to customers, as there is always a risk that payment will not be received.

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