Uncollectable

Uncollectable refers to a debt or asset that cannot be recovered or collected. This status can arise for various reasons, impacting businesses, individuals, and financial institutions.

In a business context, uncollectable accounts receivable represent money owed to a company by its customers that is deemed unlikely to be paid. This might occur due to a customer's bankruptcy, prolonged non-payment despite collection efforts, or a dispute over the goods or services provided. Businesses often establish an allowance for doubtful accounts to account for potential uncollectable amounts, which is an expense recognized in the period the debt becomes doubtful. When a specific debt is definitively deemed uncollectable, it is typically written off against this allowance.

For individuals, uncollectable debts could be personal loans made to friends or family where repayment is no longer anticipated, or debts that have passed the statute of limitations, meaning legal action to collect them is no longer possible.

Financially, an asset can be considered uncollectable if its market value has diminished to zero or below the cost of disposal, or if legal ownership cannot be established or enforced. This can include obsolete inventory or investments in companies that have failed. The determination of uncollectability often involves assessing the probability of recovery, the cost of pursuing collection, and relevant legal or contractual terms.