Dr. Anderson, a local dentist, is considering reducing his office staff and outsourcing the management of his accounts receivable. Currently, he has an office manager and two part-time workers on his staff. One part-time employee spends almost 100% of her time sending out billing notices and following up on collections. Even then, Dr. Anderson is able to collect on only about 80% of the receivables. A collection agency wants Dr. Anderson’s business. It will handle all billing and collection details for a monthly fee of $1,500. The agency believes it can deliver a 90% collection of receivables. Another firm, We Collect, Inc., has approached Anderson with a proposal that would shift all accounts receivable risk to We Collect, Inc. Anderson would receive 85% of all receivables automatically. Additional information follows:

Anderson’s average yearly accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . .$400,000

Anderson’s average annual bad debt expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000

Part-time accounts receivable employee salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000

Which of the following alternatives should Anderson pursue concerning his accounts receivable?

1. Maintain status quo (part-time employee handling accounts receivable)

2. Outsource to collection agency

3. Outsource to We Collect, Inc.