Glossary · Collections
Doubtful debt
A doubtful debt is a receivable that may not be collected. It stays on the books, but a provision is set aside against the risk of losing it.
Between “will be paid” and “bad debt” is a grey zone: invoices that are very late, disputed or owed by a customer in difficulty. These are doubtful debts. They haven’t been written off, but it would be optimistic to count them at full value.
Accounting handles this with a provision — the allowance for doubtful accounts — which reduces the reported value of receivables without removing any single invoice. If the debt is later collected, the provision is released; if not, the invoice is written off against it.
For collections, doubtful debts are where effort pays most. An invoice at 90 days is still often recoverable with a payment plan or a formal demand; one at a year rarely is.
Example
At year end, a firm has €80,000 of receivables, including €5,000 more than 120 days overdue from a client in financial trouble. It records a €5,000 provision against that balance, reporting net receivables of €75,000.