2 min read
Definition
An allowance for doubtful accounts is a provision netted against accounts receivable for the amount a business realistically expects not to recover, reducing debtors to their collectable value.
In plain terms
Not every invoice gets paid. This allowance builds that reality into the accounts before a specific debt actually turns bad.
Why it matters for your company
A sensible allowance stops receivables (and profit) being overstated, which lenders test in due diligence. When a debt is confirmed lost it becomes a bad debt write-off. See aged debtors.
Related reading
Bad debt
Bad debt is money owed to your business that you no longer expect to collect — an invoice or loan that has…
Read →
Accounts receivable
Accounts receivable is what customers owe you for credit sales — a current asset whose growth ties up cash…
Read →
Provision (accounting)
A provision is money set aside in the accounts for a likely future cost you cannot yet pin down — bad debts,…
Read →Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.