Logical Reasoning

PT102 · S3 · Q13 A company with long-outstanding

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A company with long-outstanding bills owed by its customers can assign those bills to a collection agency that pays the company a fraction of their amount and then tries to collect payment from the customers.

Conclusion

Companies with a lot of stale debt should not sell that debt to a collection agency; they should try to pursue collection of that outstanding debt on their own.

Evidence

If you sell the debt to the collection agency, you only walk away with 15% of what the debt was worth

Evaluate

Let's understand the math involved: if your company is owed $100k in long overdue unpaid bills, you can try to pursue that debt on your own (investing money into tracking your debtors down and harassing them to pay you back).

Or you can just offload that chore onto the collection agency. They'll pay $15k for the rights to those bills. (and then they're hoping that they'll be effective enough at harassing debtors that they collect a bigger share than 15% of the unpaid bills)

If you were trying to make a counterargument and suggest a company should go with the collection agency, you'd probably say:

look, I know it's depressing to only get back $15k when people collectively owe you $100k, but $15k is better than nothing. Do you think you'd beat $15k if you pursued this debt on your own? And how much effort and resources would that take?'

Goal

Since the argument is comparing two options, pursuing this debt on your own vs. selling it to collection agency for 15% its value

an author concluding Option 1 is the way to go must think that Option 1 achieves a better outcome. The outcome in Option 2 is 15% the value of the outstanding debt.

So the author is assuming that a business would end up getting more than 15% of the value of the outstanding debt back if they pursued that debt on their own.

13.

The argument depends on the assumption that

Correct
a company that pursues its
Why this is right
This affirms why the author thinks these businesses should choose to pursue debt collection themselves, rather than sell off the rights for 15% of the value of the debt. He must think that the alternative plan performs better than 15% of the value of the debt. If we negated this, it would surely weaken the author's recommendation: when you pursue debt on your own, you usually get less than 15% of the value On Necessary Assumption, if negating an answer gives you an idea that hurts the argument, that should be your correct answer.
Skill tested: Necessary Assumption · how this choice captures the argument's function is the move to repeat next time.
74% picked this
the cost to a company
Too Strong
Too Strong: doesn't exceed 15% Too Specific: the costs This is tricky and tempting. If we negate it, does it hurt the argument? the money this company would spend trying to collect debt on its own would be more than 15% the value of the debt. At first, I think it does feel like it hurts the argument. If we were the company who took this author's advice, we'd be like If I had gone with the collection agency, I would have been up $15k right now! Instead, you convinced me to pursue this $100k on my own and we're more than $15k down right now because of the cost of pursuing this debt. But, it doesn't hurt the argument. The author is assuming that if a company pursues the $100k debt on its own, it will get more money than if they were to just get $15k from a collection agency. Suppose that a company spends $20k chasing its $100k of debt (that exceeds 15 percent). If they were successful at recovering 80% of the $100k in debt, they would have brought in $80k. They spent $20k to chase down $80k of revenue. That's a $60k net gain. That's a better outcome than if the company had just accepted the $15k from the collection agency.
22% picked this
collection agencies that are assigned
Opposite
The author isn't really assuming anything specifically about the financial outcome for the collection agency, but since the author is suggesting that our company pursue debt on our own rather than "settle" for 15%, he's implicitly thinking, "Whoa, Broseph .... you're gonna take $15k from the collection agency and they're gonna turn that around and pull $50k out of the debtors? You should just do it yourself and get the $50k on your own." So if anything the author is assuming the collection agencies expect to do better than 15%.
1% picked this
at least 15 percent of
Out of Scope: 15% of customers
We're definitely curious what the average rate of return is on this outstanding debt. Unfortunately, being told that 15% of customers pay their money back doesn't tell us whether that's more or less than 15% of the total value of the debt. It's possible that the 15% of customers who do pay off their bills are the ones with the smallest bills. In that case, they wouldn't bring in 15% of the revenue. The % of customers who pay back their bills is out of scope because it's not a reliable metric for what we really care about: if you pursued the debt on your own, would your net revenue be more than 15% of the total value of the debt?
2% picked this
unless most of the customers
Out of Scope
Out of Scope: profitable Too Strong: unless / most Did the author's logic make this Premise to Conclusion move? most customers (51%) ? company won't do not pay bills be profitable Heavens, no. The move in the argument was, collection agency pursue debt only pays 15% of ? on your own total value instead
1% picked this

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