Bad Debt Definition
For a small business, bad debt is the accounts receivables that are not likely to be paid.
Bad debt may occur when a customer is unable to pay an invoice; or it may occur when a customer refuses to pay an invoice due to some dispute. There are federal and state rules about the methods a small business may use in their efforts to collect an unpaid bill. There are also IRS guidelines about writing off the bad debt when you are no longer trying to collect the bad debt.