Question

Vaughn Enterprises is a startup in the health field. They are running low on cash and the CEO is not expecting the 2nd round of funding until a couple of months down the road. The CFO was asked to review the information on their accounts receivable to see how much of their money is tied up with their clients.

The information on their books indicated that some of their accounts receivable are kind of old. Some were past due. The ages of their receivable follow a normal distribution with µ = 28 days and σ = 8 days.

Questions:

1) What portion of the account is between 20 and 40 days old? That is: P (20 ≤ x ≤ 40)

2) The CEO suggested sending reminder letters to the oldest 15% of the accounts to urge their clients to pay their accounts sooner. However, Vaughn Enterprises needs to be careful not to send reminders to clients whose accounts are not way past due. How many days old should an account be before the reminder letter is sent?

3) The VP for Client Relations suggested giving discounts to clients to pay their balance by the 21st day. What percent of accounts will receive the discount?

4) Recommend a strategy to encourage Vaughn's clients to settle their accounts early. Explain why this is your recommendation.

Answer 1