TO: James Neiman, Management of QSCA
DATE: December 9, 2010
SUBJECT: Analysis of Overdue Bills Data-Case #32
At Quick Stab Collection Agency, we value the ability to collect overdue bills from small residential & commercial accounts, and our goal is to achieve profitability growth while being able to avoid risky options. In order to maintain our company’s profitable growth in the upcoming future, I have analyzed the data on the relationship among variables: DAYS-the number of days to collect payment and BILL-the amount of overdue bills in dollars; and the additional two type of accounts given 1 being Residential and 2 being commercial. Below are my findings.
Our billing department has provided a sample of 96 randomly chosen collectible accounts during the months of January through June. From those given data, we obtained (See Table 1): • The company’s average (mean) time of payment collection is 49.78 days, while average overdue bills amounted at $174.27; • The level of fluctuation (standard deviation) of sample mean is 23.62 (for DAYS) & 77.82 (for BILL), respectively; • The data from DAYS revealed a collection period ranging from 5 being the minimum to 99 the maximum; while in BILL the minimum amount of overdue is $46, and maximum is $311.
Areas of Focused
Of course, these numbers alone do not give us a clear indication of where the company should be heading in the future. Another factor must be taken into consideration, that is—the two different types of accounts: Residential vs. Commercial. In order to further increase our profits, we must determine whether or not the company should focus on shorter-term collectibles with higher collectible amounts. To do so, we are going to look into the separate data given for Residential and Commercial accounts. To better interpret the data for each type of account, I have filtered the data according to mean overdue amounts, having sorted all accounts with a balance over $174.27, and the results are:
• In relation to the data (see table 2.1) of Residential accounts, it takes our company a minimum of 33 days to collect overdue bills and a maximum of 52 days (table 2.2); • In relation to the data (see table 3.1) of Commercial accounts, it takes our company a minimum of 39 days to collect overdue bills and a maximum of 69 days (table 3.2); • The average day of collecting the overdue bills is approximately 43 Days for the Residential accounts, and 55 Days for the Commercial Accounts.
Recommendation of Action
Since our profitability at Quick Stab Collection Agency depends critically on the number of days to collect the payment and on the size of the bills, we should, strategically aim at buying the rights to collect debts with a much higher values. More importantly, our company’s resources must not be further diversified, meaning we should pick a class of accounts that will provide a stream of stable income, higher yields, as well as shorter collection period. From my analysis of overdue bill data, with specifically attention devoted to the comparison of Residential and Commercial accounts, I have come to conclude that it is in the best interest of Quick Stab Collection Agency (QSCA) to focus on the Residential side of business for the coming period. According to the data results, QSCA should be expecting to generate average bill balances of over $174.27 in a period of between 33 days to 52 days.
Limitations of Findings
This analysis has served its part as an indicator to guide QSCA upcoming operation focus. Whether we are dealing with low values overdue bills, or even the high values one, we must not overlook the risks associated with each type. As far as the stated assumption in Residential-related business stay true, it is in the best interest of our company to pursue in this direction. However, since the data only covered an operating period of Six Months, it appeared that we must redo similar study in another...
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