What Is a Business Bad Debt?

A business bad debt occurs when a customer owes you money for goods or services you already included in income, and you can no longer collect it. If you use accrual accounting and included the income when earned, you can deduct the uncollectible amount when you determine it's worthless. Cash-basis businesses can't take a bad debt deduction — since you never included the income, there's nothing to deduct. Document your collection efforts before writing off the debt. Loans to customers or employees that go bad may also qualify as bad debt deductions.