Winter Brollies wishes to revise its credit collection policy. Currently it has £500,000 revenue, 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 forecast for revenues:

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

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Credit Period (Days) Average Collection Period (Days) New Annual Revenue () Bad Debts 30 25 600,000 (%) 2 60 55 700,000 4 90 85 800,000 8