Purchasing Services from Outside 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 parttime 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:

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.

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Anderson's average yearly accounts receivable Anderson's average annual bad debt expense Part-time accounts receivable employee salary $400,000 80,000 12,000