Question

XYZ corporation has two employees that cost a total of $90,000 annually. The two employees are given $26,000,000 in A/R. On 12/31/18 the two employees collected $3,110,000 and wrote of $22,890,000. Better collectors inc., an outsourced vendor states they can take the same $26,000,000 in A/R and collect 5,241,600 and only write of 20,758,400. The fee to Better collectors inc would be 13% of what they collected (5,241,600 * 13% = 681,408).

Should XYZ corporation terminate or repurpose the two employees and give the business to Better collectors inc.? What ROI would Better collectors inc state to XYZ corporation.

Please give detailed response.

Answer 1

Option 1 - if work given to employees

loss = salary paid + A/R not recovered

= $ 90,000 +$ 22,890,000

= $ 22,980,000

option 2 - Better Collectors inc.

Loss = Fees paid + A/R not recovered

= $681,408 + 20758400

=$ 21,439,808

Hence, the employees should be terminated and work should be given to Better Collectors Inc.

ROI to be stated by Better Collectors Inc.

investment = fees i.e. $ 681,408

Return = $ (5,241,600- 3,110,000) + $90,000

= $ 2,221,600

return on investment = $2,221,600 / $ 681,408

= 326 %