PT. ABC is currently is selling cooking oil for IDR 15.000/litre. Sales (all on credit) last year were recorded at 2.400.000 unit. Variable cost per unit is IDR 9.000/litre. The firm total fixed cost is IDR. 12.000.000.000. The firm is considering changing its credit policy. Assumption: 1 year = 360 days.

The company has identified the following two alternatives:

a. The first alternative would be for PT. ABC to relax the credit policy level, in order to obtain 10% increase in unit sales. Average collection period will increase from 20 days to 35 days. An increase in bad-debt expenses from 1.5% of sales (the current level) to 4%. The cost of investment in Account Receivable is 17%.

b. The second alternative for PT. ABC is to initiate cash discount program, changing its credit terms from net 30 to 4/10 net 30. This change is expected to reduce the average collection period from 40 days to 25 days. The sales unit is expected to increase 5% from the current level. PT. ABC estimates 85% of its customer will take the discount. The level of bad debt percentage will be decreasing from 2% to 0.5%. The cost of investment in Account Receivable is 17%

Question :

Based on two alternatives, Should PT. ABC change its current account receivable policy? Explain your answer comprehensively.