Steel Ltd supplies building contractors with steel and related goods on trade credit. The business model of the company Is dependent on the credit offers, as many contractors buy goods and then pay as they receive progress payments. However, lately, management of the company have become aware that many of their customers prefer buying goods with their own credit cards or from competitors with less stringent credit standards, which leads to a drop in sales for the company. Currently, sales are R100 000 per year. The average collection period Is 120 days and bad debts amount to 3% of sales.

It is expected that, if credit standards are loosened by way of less stringent credit checks, sales would rise to R120 000 per year, the ACP would increase to 150 days, and bad debts would rise to 4% of sales. Variable costs amount to 70% of sales and the company can invest or borrow short-term funds at a rate of 6% {Assume 365 days in a year).

Determine whether the company should adapt its credit standards or not.