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, and fixed costs are a further 5% of sales. Velcro classifies customers on a scale of 1 to 4 . During the past five years, the collection experience was as follows:

Classification	Defaults as Percent of Sale	Average Collection Period in Days for Nondefaulting Accounts
1	0	45
2	2.0	42
3	10.0	40
4	20.0	80

The average interest rate was 15%.

What conclusions (if any) can you draw about Velcro's credit policy? What other factors should be taken into account before changing this policy?