What does the term 'Bad Debtors' refer to?

The term 'Bad Debtors' specifically refers to customers who fail to fulfill their payment obligations for goods or services received. This situation typically arises when customers delay payments, refuse to pay, or go into default on their debts. Businesses closely monitor bad debtors because they pose a financial risk, potentially leading to a loss of revenue and complicating cash flow management. Identifying and managing bad debtors is critical for maintaining the overall financial health of a business.

In contrast, customers who frequently make large purchases, who pay promptly, or those with a good payment history are all considered positive contributors to a business’s financial standing rather than liabilities.