How to Calculate the Percentage of Bad Debt
Original post by C. Taylor of Demand Media
Calculating the percentage of bad debt allows a business to track increases or decreases in uncollected bills. Although a certain percentage may be unavoidable, increases in bad debt indicate a higher risk realization of bad debt, which also increases the risks of having to write off deadbeat accounts. Calculating the percentage of a company's bad debt is a fairly straightforward process.
Consult your company's balance sheet to acquire the total sales revenue and the amount of uncollected debt. Alternatively, you may use total accounts receivable and the amount of this total that is eventually written off.
Divide the amount of bad debt by the total figure. For example, if you had $250,000 in total sales with $25,000 of uncollectable debt, then the bad debt rate is 0.10.
Multiply by 100 to calculate the percentage. In the example, 0.10 times 100 gives you a bad debt percentage of 10 percent.
- CRF Online: Ratios and Formulas in Customer Financial Analysis
- Covering Business Credit; How to Calculate Bad Debt Reserves; Michael C Dennis
About the Author
C. Taylor has been a professional writer since 2009. He has written for online publications and the "Journal of Asian Martial Arts." Taylor specializes in martial arts, traveling, sciences and computer repair. He received a Master of Science in wildlife biology from Clemson University and a Bachelor of Arts in biological sciences from the College of Charleston.