The term bad debt means debt that cannot be collected. Bad debt is a financial term used to describe a debt that is no longer considered collectible by the creditor. This may occur when a debtor is unable or unwilling to pay the debt owed to the creditor. Bad debts are usually written off by the creditor as an expense in their financial records. Bad debts can occur in any business where credit is extended to customers, and it is a risk that must be managed by the creditor. To reduce the risk of bad debts, businesses may use credit analysis tools to evaluate the creditworthiness of potential customers before extending credit.