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Example 4 :
Company Lim have listed a number of credit policy to be reviewed. During
the year the average sales for the company is about RM10 million and the
average collection period is 30 days. 15% of customers take the discount.
Current discount rate is 1%.
Bad debt expenses are estimated at 1% of sales. The policies below have
been shortlisted for the study:
Credit Policy A B C D
The increase in sales from current 1.0 1.5 1.8 2.0
sales levels (RM'000'000)
Average collection period (days) 50 52 55 62
Estimated bad debt expense 2 2 3 3
(% of total sales)
% customers taking discount 20 22 24 30
Discount rate (%) 2 3 4 5
Selling price is RM200.00 per unit and variable cost is RM150.00 per unit.
Cost of capital is 15% (1 year = 360 days)
State which credit policy is the best for the company.
