Bad Debt Recovery

Written by:
Image
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades.

Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers. While there, Paul authored and edited thousands of financial research briefs, was published on Nasdaq. com, Yahoo Finance, and dozens of other prominent media outlets, and appeared as a guest expert at prominent radio shows and i...

View all posts
Updated August 28, 2020

What is Bad Debt Recovery?

Bad debt recovery is when a company is able to collect a payment that was previously classified as a bad debt

How Does Bad Debt Recovery Work?

Let's assume that Company XYZ sells $1,000,000 worth of goods to 10 different customers.  Company XYZ records $1,000,000 in revenue on its income statement and $1,000,000 in accounts receivable on the balance sheet (we are assuming the customers have 60 days to pay). 

Company XYZ discovers that one of its customers, Big Store, is not doing very well. Big Store stops paying its bills and doesn't pay Company XYZ for $100,000 worth of goods. Company is not confident that Big Store will ever pay, so it categorizes the $100,000 as a bad debt.

Now, assume that Company XYZ hires a collection agency to try to recover the $100,000 Big Store owes. If the collection agency is able to collect some or all of the $100,000, it has successfully managed a bad debt recovery.

Why Does Bad Debt Recovery Matter?

Most companies have some sort of bad debt expense because, invariably, one customer or another will fail to pay. That puts companies that specialize in bad debt recovery in constant demand.

Ask an Expert about Bad Debt Recovery
At InvestingAnswers, all of our content is verified for accuracy by Paul Tracy and our team of certified financial experts. We pride ourselves on quality, research, and transparency, and we value your feedback. Below you'll find answers to some of the most common reader questions about Bad Debt Recovery.
Be the first to ask a question

If you have a question about Bad Debt Recovery, then please ask Paul.

Ask a question

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 2 million monthly readers.

If you have a question about Bad Debt Recovery, then please ask Paul.

Ask a question Read more from Paul

Read this next

Don't Know a Financial Term?
Search our library of 4,000+ terms
Paul Tracy - profile
Ask an Expert about Bad Debt Recovery

By submitting this form you agree with our Privacy Policy

Share
close