Bad debt ratio (tabsprocent)
Also known as bad debt ratio, bad debt rate, loss ratio, bad debt losses, tab på debitorer
The bad debt ratio is the share of revenue that ends up as realised losses on the debtor ledger.
In practice
The bad debt ratio is the bottom line. DSO measures how long the money takes to come in; the bad debt ratio measures how much of it never comes in at all.
The two hang together: the longer a claim is left to sit, the greater the likelihood that it turns into a loss. That is why consistency in the reminder process is not a question of 100 kr. in fees — it is a question of the bad debt ratio.
Where it commonly goes wrong
- The bad debt ratio is accepted as a fact of life in the industry. To a large extent it is a result of your own processes.