A bad debt is the borrowed sum of money that has no possibility of returning back to the money lender. Usually, money lent will be considered as bad debt when the lender has tried unsuccessfully through all his resources to pay the money back or has cut down all communications with the bank seeking return of his loan. Usually bad debt results from bad management decisions or unfavourable economic climate causing huge losses to the company. The bad debt has far reaching repercussions and could even impact the economy of the country. For example: Recently, we have witnessed a huge amount of bad debts being declared by several companies which couldn’t be compensated by govt. and the impact was clearly borne by the public in the form of transactional charges and increased service charges.
How bad debt impacts the future of a business:
When a banks get the bad debt from a business then it directly effects the ways it approaches or deals with company’ assets and management. The bank authorities try to compensate the loss by acquiring the properties owned by the defaulter. The credit score of the defaulter is reduced which will further discourage the investors in lending the money to the business. It will directly hit the employees in the form of lay-offs, lack of jobs or reductions in their monthly wages and no sign of increment announcements. If company is a service provider, the impact will be on the huge customer base that has opted for the service and paid the money for monthly or annual plans or a prepaid plan with a huge amount of money. Thus a bad debt will affect the business of the defaulter and have serious impacts on the dependents of the business which make it increasingly more important to find out more at debt free life about ways to run business in healthy and profitable manner.