Calculating the percentage of bad debt allows a business to track increases or decreases in uncollected bills. Although a certain percentage may be unavoidable, increases in bad debt indicate a higher risk realization of bad debt, which also increases the risks of having to write off deadbeat accounts. Calculating the percentage of a company's bad debt is a fairly straightforward process.
1. Consult your company's balance sheet to acquire the total sales revenue and the amount of uncollected debt. Alternatively, you may use total accounts receivable and the amount of this total that is eventually written off.
2. Divide the amount of bad debt by the total figure. For example, if you had $250,000 in total sales with $25,000 of uncollectable debt, then the bad debt rate is 0.10.
3. Multiply by 100 to calculate the percentage. In the example, 0.10 times 100 gives you a bad debt percentage of 10 percent.
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