=8/Pincer plc is hoping to increase sales by granting its customers longer payment periods. Its annual sales currently stand at €1m and it gives its customers an average of 30 days to pay.

The company made the following assumptions when defining its customer credit policy.

Extension of payment period Increase in sales 15 days €40 000 30 days €60 000 45 days €70 000 60 days €75 000 The sales price of a manufactured unit is €4 and the cost price is €3.2, including €1 in fixed costs. What policy should the company introduce if it requires a 20% return (before tax) on its capital invested (its inventories are financed through supplier credit)?

Pincer has also made the following forecasts for bad debts:

Extension of payment period Bad debts (Sales)

15 days 2%

30 days 2.5%

45 days 3%

60 days 4%