The accounts receivable department in an organisation is responsible for
ensuring that all incoming payments are received and processed on time and
accurately. It is usually responsible for sending invoices, assigning payments,
tracking due dates, demanding late payments and analysing accounts. In an
industrial cleaning service, the accounts receivable department handles an
average 2,100 payments per week (7 days) that are collected from the
customers' accounts based on direct debit mandates. A recent analysis has
revealed that there are on average 1,200 payments waiting to be collected from
the customers' accounts.
i. What is the average time it takes to collect pending payments from the
client's accounts? (4 marks)
Collected payments can be classified either as small or large. Small payments
exhibit an average of \pounds1,000 and large payments exhibit an average of \pounds10,000.
Usually, 30% of the pending payments can be classified as large and 70% of
the pending payments can be classified as small. The current payment
collection process does not distinguish between small and large payments.
ii. Given the current payment collection process, what is the average
inventory value waiting to be collected? (6 marks)
iii. Analyse and discuss if it is worth reallocating resources in the
department so that large payments wait an average of 0.4 weeks while
