Doubtful debt

Definition

A doubtful debt is an amount owed to a business that may not be paid — a customer invoice that has gone far overdue or where the customer's circumstances raise real concern. It is not yet written off, but a prudent business provides for the possibility.

In plain terms

The longer a debt is overdue, the more doubtful it becomes. Accounting prudence means recognising the risk by making a provision, so the accounts do not overstate the cash you are likely to collect.

Why it matters

Spotting doubtful debts early lets you act before they become bad debts. See ageing schedule and write-off.