Accounting

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The following is an excerpt from a conversation between the office manager, Mark Cottman and the president of Horowitz Construction Supplies, Co., Rosa Mullin. Horowitz sells building supplies to local contractors.

Mark: Rosa, we’re going to have to do something about these overdue accounts receivable. One-third of our accounts are over 60 days past due, and I’ve had accounts that have stayed open for almost a year!

Rosa: I didn't realize it was that bad. Any ideas?

Mark: Well, we could stop giving credit. Make everyone pay with cash or a credit card. We accept MasterCard and Visa already, but only the walk-in customers use them. Almost all of the contractors put purchases on their bills.

Rosa: Yes, but we've been allowing credit for years. As far as I know, all of our competitors allow contractors credit. If we stopped giving credit, we’d lose many of our contractors. They’d just go elsewhere. You know, some of these guys run up bills as high as $60,000 or $80,000. There's no way they could put that kind of money on a credit card.

Mark: That’s a good point. But we've got to do something.

Rosa: How many of the contractor accounts do you actually end up writing off as uncollectible?

Mark: Not many. Almost all eventually pay. It's just that they take so long!

Suggest one or more solutions to Horowitz Construction Supplies Co.'s problem concerning the collection of accounts receivable.

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