A&R Consultants have completed a preliminary review of accounting operations for your firm, and have provided several possible changes to policy and procedure in accounts payable and accounts receivable.

The first idea is to improve the billing and payments process by streamlining procedures and training personnel. At a one-time cost of $5 million, the improvements are expected to reduce receivables up to 20% and lower overall administrative expense by 1%.

To reduce accounts receivable, you can offer a discount on invoices that are paid quickly, and charge interest on late payments. The consultants estimate that a 2% discount on payments that are paid within 10 days will reduce receivables by 20%, with 10% of invoices paid within the 10 days. Charging 1.5% per month on payments that have not been received within 60 days is expected to reduce receivables by 5% and generate some revenue on late payments.

On the payables side, the consultants report that 30% of suppliers would be willing to discount invoices by 2% in exchange for faster payment. On the downside, cash requirements will go up as payables are reduced due to the accelerated payments. As an alternative, you can delay payments to certain suppliers, which would increase payables by about 15%.

Which of the changes would you like to pursue? Choose zero, one, or more of the options, and note that options 4 and 5 are mutually exclusive.

NEED CONCLUSION