Winter Brollies wishes to revise its credit collection policy. Currently it has £500,000 sales, 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.

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