The amount owed by a customer who cannot, or will not, pay for goods or services they have had. Source:

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Bad debt refers to credit that cannot be recovered because a customer (debtor) is unable to pay due to financial difficulties. It is often written off after repeated attempts to collect the outstanding amount have failed. Businesses may estimate a portion of their receivables as bad debt based on past experiences and market conditions, which is known as a bad debt provision.  

Example: A furniture retailer has a customer who filed for bankruptcy and cannot settle a £2,000 invoice. Despite numerous follow-ups and debt collection efforts, the retailer determines that the invoice is uncollectible and classifies it as a bad debt. As a result, the retailer writes off the £2,000 and adjusts its accounts receivable balance accordingly.