The Practical Use Of Game Theory In Accounts Receivable
For decades, game theory has been used to predict behavior and outcome of scenarios. However, these are not the only areas where the concept is essential.
In several behemoth companies, game theory is used to accounts receivable (AR) in a bid to increase the rate of collection and also offer customer lifetime value.
So how can you use game theory in accounts receivable? Let’s find out.
Seamless supply chain
Typically, a supplier and a buyer know each other’s steps. For example a supplier will send the buyer an invoice before transaction commences. The best part? As a supplier you know the next move of the customer.
So what can you do?
- Send reminders: This helps you discover errors in the invoice.
- Gain customer’s information: This will allow you to make better decisions in the future. For example you can track their credit score.
Asymmetric information game
Asymmetrical information that each player has affects the timeliness of payments. For example if the invoice was received by the wrong person, had errors, or never reached the customer, then delay in payment is expected.
What can you do?
- Be productive: Avoid overlooking simple mistakes as they might snowball and case disaster at the end. Ensure you import data accurately and when you make mistakes, make prompt corrections.
- Provide invoices beforehand: Send them with other supporting documents such as proposals to avoid excuses from the buyer when making payment.
Manipulative games
Players use manipulative tactics such as threats to change the game. Ensure that your move are unpredictable and at the same time irreversible. Avoid changing your mind even when you feel like and do not fail to meet your commitments.
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