What is Bad debt?
Bad debt is money owed to you that you'll never collect — a customer went bankrupt, vanished, or simply won't pay. It's written off as a loss, and it's why smart businesses watch aging receivables: a 90-day-overdue invoice is a warning, not a plan.
In practice
A client's company folds owing $4,200. After dunning and a collections attempt fail, the $4,200 is classified as bad debt.
Keep bad debt near zero
Deposits, credit checks on big jobs, and fast follow-up prevent most bad debt.
Read the getting-paid guideFrequently asked questions
How do I prevent bad debt?
Deposits on big jobs, credit checks on new large clients, clear payment terms, and fast dunning. Prevention beats collection every time.
Is bad debt tax-deductible?
Generally yes, as a business loss when properly written off. Accrual-basis businesses deduct it directly; cash-basis businesses generally can't (they never recorded the income).
What's a normal bad-debt rate?
Under 1–2% of revenue for most small businesses. Consistently higher means your client screening or terms need work.