Why bad debt matters to a first-time founder
Revenue is not useful cash if the customer never pays. Bad debt reduces profit and working capital, and repeated losses can expose weak credit checks or collection processes. Monitoring overdue invoices helps you act before a doubtful account becomes effectively uncollectable.
Examples of bad debt
A South African agency invoices a client R120,000 with 30-day terms. Six months later the client enters liquidation and the agency expects no recovery. The R120,000 receivable becomes bad debt, subject to the evidence and accounting rules that apply in its jurisdiction.
Common misunderstanding
Bad debt is the customer amount expected not to be collected. Bad-debt expense is the accounting charge that recognises an actual or estimated loss in the income statement. An overdue invoice is not automatically bad debt; collection may still be likely or secured.
When to use it
Review it during monthly receivables checks and before reporting profit or tax. Set credit limits, invoice promptly and document collection attempts. Ask an accountant when to write off a specific balance or claim tax relief, because accounting and tax rules differ by jurisdiction.