Have you ever lent money to a friend who promised to pay you back but never did? That uncomfortable feeling you got when you realized your money wasn’t coming back is exactly what businesses experience with bad debts.

Imagine you run a small business selling furniture. A customer wants to buy tables from you but doesn’t have cash right now. Instead of cash, they give you a bill of exchange promising to pay you in 90 days.

Have you ever borrowed money from a friend or lent someone your favorite book? If yes, then you’ve already experienced the fundamental relationship between debtors and creditors.