Doubtful customer

A doubtful customer is a customer for whom payment is uncertain: serious payment delays, known financial difficulties, bankruptcy proceedings, or a serious legal dispute. In accounting, receivables from such customers are then set aside in a separate account.

Example

A customer hasn’t paid for four months and is no longer responding. The company classifies these invoices as doubtful accounts and records a provision.

Why It’s Important

Classifying a customer as “doubtful” allows you to closely monitor the risk, stop credit sales, and ensure that the financial statements accurately reflect the actual situation.

For more information: Customer Risk Management.

See also: allowance for doubtful accounts, low customer score, litigation.