Accounts Receivable Group Assignment – Group 1

Names: Alexandra Carpenter, Braedon Spicer, Thales Lumertz

1. Garibaldi’s current credit policies are based on old costumes. The establishment has no
actual control of accounts receivable and simply writes down the “house accounts” on
paper, which can lead to larger amounts of bad debt expense. Because the former
owner has given his customers the taste of such laid-back approach, they are now used
to such flexible policies and enjoy paying later (when they feel like paying).

2. As said before, no computer system is used and accounts receivable are written on
paper, which can be easily lost, in addition to potential errors due to one’s handwriting
being illegible to another employee. Furthermore, keeping track of how much a
customer’s account amounts to is harder this way, since manual calculation have to be
put into place, and debits and credits aren’t taken into consideration.

3. First, Garibaldi’s should allow no further credit purchases in such manner, given how
troublesome it turned out to be. This way, customers can opt to pay what they already
owe, without being able to purchase in the “house accounts” anymore, since, as the title
of the problem suggests, these accounts end up being “on the house”, given they will
most likely not be paid.

Additionally, the company can incentivize old customers to continue shopping by

offering cash discounts, which will help bring liquidity to the company, something that is
much needed in such times of “house accounts” only.

Finally, the company may promote a “New Management” campaign and raise
awareness to changes in credit policies by providing new menu items, for example,
which can help old customers to understand why such manner are being put into place
and bring a new look for the Deli. These changes may upset some customers that
preferred the old way of doing things in lieu of new customers that may be drawn to the
place, diminishing potential losses. Because the loss from the continuing policies is
larger than losses coming from lack of revenue from existing “house accounts”
customers, the company’s new strategies turn out to be worth it.