What is the threshold for a receivable to be considered uncollectible?

The threshold for a receivable to be considered uncollectible is typically set at a 50% likelihood. This means that if it is assessed that there is at least a 50% chance that the debt will not be collected, it is prudent to classify that receivable as uncollectible.

This threshold is significant because it balances the need to maintain accurate financial records while acknowledging the risks associated with accounts receivable. If there's a reasonable expectation that a portion of the debts cannot be recovered, businesses must account for this in their financial statements to reflect a more accurate picture of their financial position.

While higher thresholds like 70% or 100% may seem more conservative, they would be overly stringent, potentially ignoring debts that, while uncertain, still have a reasonable chance of collection. Conversely, a threshold of 30% may be too lenient, allowing risks to be understated and affecting the overall financial health assessment. Thus, 50% serves as a practical benchmark in debt management practice.