a firm assumes that an account is uncollectable if the account is more than three “Suppose months overdue. Then at the beginning of each month, each account may be classified into one of the following states: State 1 New account State 2 Payment on account is one month overdue. 3 Payment on account is two months overdue. State 4 Payment on account is three months overdue. 5 Account has been paid. State 6 Account is written off as bad debt. For example, if an account is two months overdue at the beginning of a there is a 40% chance that at the beginning of next month, the account will not be paid up (and therefore be three months overdue) and a 60% chance that the account will be paid up. To simplify our example, we assume that after three months, a debt is either collected or written off as a bad debt. Once a debt is paid up or written off as a bad debt, the account is closed, and no further transitions occur. […]. What is the probability that a new account will eventually be collected? What is the probability that a one-month-overdue account will eventually become a bad debt? If the firm’s average $100,000 per month, how much money per year will go uncollected? ”
“Suppose a firm assumes that an account is uncollectable if the account is more than three months overdue. Then at the beginning of each month, each account may be classified into one of the following states: State 1 New account State 2 Payment on account is one month overdue. 3 Payment on account is two months overdue. State 4 Payment on account is three months overdue. 5 Account has been paid. State 6 Account is written off as bad debt. For example, if an account is two months overdue at the beginning of a there is a 40% chance that at the beginning of next month, the account will not be paid up (and therefore be three months overdue) and a 60% chance that the account will be paid up. To simplify our example, we assume that after three months, a debt is either collected or written off as a bad debt. Once a debt is paid up or written off as a bad debt, the account is closed, and no further transitions occur. […]. What is the probability that a new account will eventually be collected? What is the probability that a one-month-overdue account will eventually become a bad debt? If the firm’s average $100,000 per month, how much money per year will go uncollected? ”