Impact of bad debt provision in our financial

Question

Accepted Answer

Bad debt provision has a significant impact on the financial health of a company.

Bad debt provision affects the company's profitability and cash flow.
It can lead to a decrease in revenue and an increase in expenses.
The provision for bad debt is an estimation of potential losses from customers who may not pay their debts.
If the provision is too low, it can result in unexpected write-offs and financial instability.
On the other hand, if the provision is too high, it can artificially reduce profits and hinder growth.
Bad debt provision is crucial for accurate financial reporting and assessing the company's credit risk.
It helps in managing credit policies, setting appropriate interest rates, and evaluating customer creditworthiness.
For example, a company with a high bad debt provision may tighten its credit terms to minimize future losses.
Alternatively, a company with a low bad debt provision may offer more lenient credit terms to attract customers.
Overall, bad debt provision directly impacts the financial performance and risk management of a company.

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