It's now time for the stakeholders to take the investigation resulting from leverage and craft a strategy which will address the current situation in a manner that is beneficial to the whole system. There is a also a video
for this insight which is a component of the Effective Problem Solving Course
Since the customer has to sell enough to cover the whole invoice, which is what's extending the [Average AR Period], suppose we keep the discount plan and put them on a weekly payment plan.
This should sever to reduce the [Average AR Period] since the payments will come in every week until waiting until 53 days on average.
Decreasing the [Average AR Period] would then reduce the [Carrying Cost].
Decreasing the [Carrying Cost] should then have a positive influence on [Profit].
With this increase in [Profit] the company might just be able to further improve the [Discount] and we have a virtuous reinforcing structure.
Further discounts might actually improve the [Customer Business].
If the [Customer Business] improves then it should have a positive affect on [Sales].
And increasing [Sales] increases [Revenue] which increases [Profit] and we have another virtuous reinforcing structure.
So rather than two competing goal seeking structures we have to mutually supportive virtuous growth structures. And the last time I figured it out, without actually changing anything implementing an 8 week payment plan would cut [Average AR Period] immediately by 42%.
Figuring out all the detail for how much to discount and the potential impact on revenue and profit probably takes a simulation model... though we'll leave that for another course.