Bad Debt

Financial Term

There are two meanings of the phrase bad debt. In financial terms, bad debt is a debt that has not been repaid according to agreement and is not recoverable. For example if a customer receives a product or service then doesn’t pay the bill and “disappears,” that is a bad debt.

In the aftermath of the Great Recession the “fear of debt” has become a big deal for many people, and there are discussions about “good debt vs. bad debt.” In this discussion a “bad debt” is one taken on for reasons that do not lead to a positive return. In a business context a “bad debt” might be the mortgage on a fancy office building that is not justifiable based on the revenue, profits and cash flow of the business.

Don Gooding

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