26. Credit Policy. Jim Khana, the credit manager of Velcro Saddles, is reappraising the company's credit policy. Velcro sells on terms of net 30. Cost of goods sold is 85% of sales. Velcro classifies customers on a scale of 1 to 4. During the past 5 years, the collection experience was as follows:

The average interest rate was 15%. What conclusions (if any) can you draw about Velcro's credit policy? Should the firm deny credit to any of its customers? What other factors should be taken into account before changing this policy? (LO4)

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Classification 1 2 Defaults as Percentage of Sales 0 2 N Average Collection Period in Days for Nondefaulting Accounts 45 42 3 10 50 4 20 85