Have You Set Up a System for Optimizing Working Capital?

Is cash flow optimization a challenge for your business?

November 11, 2024

Many businesses find cash flow tied up in inventory, delayed by late payments, or stretched by tight supplier terms. These cash blockages limit flexibility and growth, but optimizing working capital can unlock resources you already have.

The Cash Conversion Cycle (CCC) is a straightforward model that helps you assess how efficiently your cash is moving through the business. It measures the time cash is tied up in three areas: inventory, receivables, and payables. A shorter CCC means faster cash circulation, giving you more available funds.

Here’s how to use the CCC to your advantage:

  1. Inventory: Excess inventory ties up cash unnecessarily. Analyze inventory turnover and align stock with demand. For example, if you’re holding three months’ worth of inventory but could meet demand with two, reducing stock levels will free up cash for other needs.

  2. Receivables: Late payments delay cash flow. Tightening terms or offering small discounts for early payments can shorten receivable periods. For instance, moving from 45 to 30-day terms can boost available cash without new revenue.

  3. Payables: Extending payment terms with suppliers allows you to hold onto cash longer, easing cash flow pressure. Negotiating from 15 to 30 days can offer breathing room without affecting supplier relationships.

By shortening your CCC, you can improve cash flow, making your business more agile and ready to fund new opportunities.

Cash Flow Mastery Course
Our 4-week Cash Flow Mastery Course dives into optimizing operational, investment, and financial cash flows for sustainable growth. Learn proven techniques to optimize working capital and gain control over cash flow challenges. Available for USD 197, with a 50% discount for all the subscribers. Email at [email protected] to secure your spot.