Winter Brollies wishes to revise its credit collection policy. Currently it has £500,000 sales, LO1 a credit policy of 25 days and an average collection period of 20 days. 1% of debtors default. Credit control costs are £5,000 for 25 days and 30 days; £6,000 for 60 days and 90 days. There is the following potential sales forecast.

Credit Period Average Collection New Annual Bad Debts

(Days) Period (Days) Sales (£) (%)

30 ES 600,000 2 60 55 700,000 4 90 85 800,000 8 The cost of capital is 10% and the average contribution is 20% on selling price.

Assume 360 days in year.

Required:

Advise Winter Brollies whether or not it should revise its credit policy.