Bad debt is a monetary amount owed to a creditor that is unlikely to be paid and for which the creditor is not willing to take action to collect for various reasons, often due to the debtor not having the money to pay, for example due to a company going into liquidation or insolvency. In other words, bad debt is an irrecoverable receivable. Bad debt is considered an expense in accounting and finance, and it is reported along with other selling, general, and administrative costs. There are two methods to account for bad debt: the direct write-off method and the allowance method. The direct write-off method records the exact amount of uncollectible accounts as they are specifically identified, while the allowance method requires a company to estimate the amount of bad debt that it will need to write off in any given period. Companies that extend credit to their customers report bad debts as an allowance for doubtful accounts on the balance sheet, which is also known as a provision for credit losses.