What is bad debt in the financial world? Bad debt in some instances can be termed as uncollectible owing money that could never be collected. Bad debt in other words is money owed to a lender that is not likely to be repaid and for which the lender is simply not prepared to take measures to collect on the outstanding debt. A common example of bad debt would be a credit card debt, which has expired and which is still not paid in full. Such an instance of what is bad debt in the financial world would be called uncollectible and may result in the lender being unwilling to even consider a further loan to the person in question.
Definition of Bad Debt
- Definition of Bad Debt – In simple terms, a bad debt is money owed to an unavailable party that the recipient is not in a position to pay. In most cases, bad debt is money owed that has gone uncollected for some period of time.
- Bad debt in financial terms is debt incurred for non payment of some of the original agreed terms. Bad debt sometimes also known as uncollectible accounts cost is an amount owed to a lender which is probably never going to be paid, and for which the lender is probably not likely to take action to recover for.
It may also be said that what is bad debt recovery in the financial context is what is called non-recourse debt, which means that if a customer cannot pay for what is owed then there is nothing the lender can do in order to recoup what is owed. There are two concepts involved here: one is that payment received is payment received and the second is that payment is made in such a manner as to allow the lender to have what is owed even if it turns out the customer cannot actually repay it. This is why it is so important that any agreement that is entered into is fully enforceable and that it is signed by both parties in writing. Any agreement entered into between a client and a financial institution (such as a bank or a building society) must have a clause of full and total payment and receipt of the money from the client and it must have all the terms and conditions set out in the contract stated in the contract itself.
The first thing to say about what is bad debt recovery in this context is that it is sometimes inevitable. For example, many people have been in situations where they have simply lost their source of income and in these cases what is bad debt recovery is that the loss of income continues and the clients cannot continue to pay their mortgage or rent. It could be that they are receiving some other form of benefit but their income is continuing to decline. In these circumstances what is required is for the clients to state clearly what is required of them under the contract that is being agreed upon so that whatever the contract says becomes enforceable.
Another example of what is bad debt recovery is where a client has not received all their payments on time. This could be due to errors made when entering the information in the initial account and could also be because the account has been incorrectly managed and therefore payments are late. Again, in these circumstances what is required is for the client to state clearly what is required of them under the contract and to ensure that all of their payments are received on time and with the correct amount of money. They need to also have a way of obtaining paid receivable and in these circumstances what is required is again to enter into a contract with the financial company that is providing the collection.
When what is bad debt recovery is being done to recover money from an account, the recovery agency will always need to prove that there is in fact a debt outstanding. One example of when this could be the case is if you were to pay a bill online then never received a confirmation email. You would assume from the emails that you have paid the bill but in reality this is just an automated system sending the bill to another address. The best thing to do here would be to report the incident and to ask for verification of the bill being paid by using an online payment system.
Another scenario is where a non-business bad debts recovery agency has been set up to deal with accounts that are not always business related. Some of the situations that could arise here are where a client is losing money and unable to continue working with their current employer. Another reason a non-business bad debts recovery agency may be called in is where the client owes money for something like a credit card and has run up a huge debt without making any type of payment. In this instance what is required is for the client to prove that they have not made any type of payment on this credit card account in the last six months.
Non-business bad debt recovery can also be requested when you have an account receivable that is not being paid on a monthly basis. The problem here is that often times the amount of money that needs to be collected from the client in order to pay off the receivables is so great that the amount of money that the company is able to charge the client is limited. In some cases a non-business bad debt recovery agency may be able to negotiate the amount that needs to be charged in order to ensure that the client gets what is owed. However it is rare that the company will be able to negotiate this amount down to what is needed to clear the receivable at the lowest possible rate. In most cases they will pass the client’s collection account information to collection agencies who will then try to locate the customer and send them money by any means necessary.
As you can see, there are a number of different situations that qualify as what is bad debt recovery. It is important to realize that each situation is unique and can require the assistance of a professional debt recovery company. If an agency is unable to assist you with your collection efforts and your accounts become overdue or collection calls continue to occur after you have instructed the agency to cease these activities then it may be best for you to consider using a professional for help. If you feel that you have been a victim of what is bad debt recovery and are experiencing problems meeting your payments or clearing your past due accounts then it may be best for you to contact an agency that has experience working with these type of clients to make sure that you are fully protected.