Crystal Ball Example: Is it worth hiring an Accounts Receivable person to reduce our AR Days?

Is it worth hiring an Accounts Receivable person to reduce our AR Days?

We are considering hiring a new AR person to reduce our AR Days.  They are currently 65 and we would like to get them to 45.

Assumptions made in this example:

• The cost of the person is $65kp.a.
• The wages are an indirect cost
• Current AR days are 62
• There are no other increases in costs associated with hiring the new person

Which levers will be affected?

Scenario 1: Hiring a new person brings the AR days down to 45

Enter 65 (k) in the Indirect Costs Wages $000, and -17 in the AR Days. Note the variability is set to the default of 25% but it has no impact because we are not modeling a volume change (variability is only related to volume changes).

This is a Yes/Yes decision.

Scenario 2: Hiring a new person brings the AR days down to 60

Now let’s see if only a minor change in a reduction in AR days results in a Yes/Yes decision.

Even if the AR days only reduce by 2, it is still a Yes/Yes decision.