Bad debt refers to accounts receivable that foreign trade enterprises cannot recover, usually caused by buyer bankruptcy, refusal to pay, delinquency, or malicious fraud. Usage scenarios include: after the exporter sells on credit (O/A) or collection (D/P, D/A), the buyer fails to pay at maturity and collection efforts are unsuccessful; or in letter of credit transactions, the issuing bank goes bankrupt. Notes: Bad debt should be distinguished from 'doubtful debt'; doubtful debt is a long-term outstanding account that may still be recoverable, while bad debt is confirmed as unrecoverable and requires bad debt provision or write-off. Unlike 'refusal to pay', which is an explicit refusal by the buyer but may be resolved through negotiation, bad debt is a final loss. Foreign trade practitioners should reduce bad debt risk through credit insurance, advance payment, letters of credit, or factoring, and regularly assess customer credit.
📝 Examples
1. Due to the sudden bankruptcy of a Brazilian buyer, a USD 200,000 accounts receivable of our company was finally confirmed as bad debt, and we have filed a claim with Sinosure. (Note: Buyer bankruptcy led to bad debt, and credit insurance reduced the loss.)
2. When using D/A 60 days payment terms, we require the customer to provide a bank guarantee; otherwise, once bad debt occurs, the cost of recovery is extremely high. (Note: Preventing bad debt in credit sales, emphasizing risk control measures.)
💡 Foreign Trade Tips
Foreign trade terms are the foundation of international business communication
Trade practices may vary slightly by country; pay attention when using them
When using terms in contracts, specify the applicable version (e.g., Incoterms 2020)
For unfamiliar terms, use GlobalSync's multilingual email helper to confirm with your partner