Abstract
We develop algebraic methods for a general sensitivity analysis of the classic Cyert-Davidson-Thompson model of a system of accounts receivable, and use the resulting analytical relationships to investigate the stability of estimates for the losses from doubtful accounts (bad debts) and the present value of interest income generated by charges to the accounts. The limits of applicability of our results are examined by means of a comprehensive numerical analysis of the realizable values of the coefficients in the derived relationships from a four-state model. It was found that neither bad debt losses nor interest income are overly sensitive, in general, to changes in the probabilities of transition between the account age categories, but that some of these probabilities are more critical than others. It was also found that a given percentage increase in the new charge growth rate usually produces approximately the same percentage decrease in the bad debt loss rate.
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