Bad Debt Expense Percentage

The bad debt expense percentage measures the expected uncollectibility on credit sales.

Definition Bad debt expense percentage equals bad debt expense for the year divided by credit sales for that year.
Bad debt expense is the net addition to the allowance for bad debts during your business year. If you do not maintain an allowance account, it would be the amount you write off during that year.
Credit sales includes all sales except for returned merchandise and cash sales.
Bad Debt Expense Percentage Calculator
Bad Debt Expense $
Credit Sales $
Bad Debt Expense Percentage

Working with your bad debt expense percentage

Most businesses have some level of bad debt expense. No bad debt expense probably means that you are too restrictive in accepting credit risk while too many bad debts may mean you are extending too much credit to unworthy credit risks. An increase in the bad debt expense percentage is a negative sign, since it indicates that you are accepting more credit risk and increasing the potential for future write-offs.

By monitoring changes in your bad debt expense percentage over time, you can better understand the financial dynamics of your business and run it more effectively. Here is a worksheet you can use to track changes in this and other important measures.