There are 7 areas which contribute to the length of your Cash Conversion Cycle. Below we’ve given you some ideas on how to begin reducing the number of days in each area and start enjoying better cashflow, today.
1. Accounts Receivable
Reduce the time between billing and banking by tightening your Terms of Trade, offering prompt payment benefits and streamlining your billing process to work like clockwork each month.
2. Accounts Payable
Review suppliers’terms of trade and discount. Implement budgets, streamlining your payments process to maximise prompt payment discounts and avoid late payment
penalties.
3. Inventory Process
Review your stock ordering systems and stock control processes and identify strategies to ensure cash hits the bank sooner i.e. think about how you could get your goods out even one day faster.
4. Poor debt/capital structure
Review existing debt and capital structure.Could debt be consolidated and paid off over a longer term? Review and adjust what you’re drawing from the business or identify if the business needs a capital injection to fund its growth.
5. High Overheads
Review your overheads annually. Look at the effectiveness of your marketing spend, go paperless, put expense budgets in place and change your technology platform to reduce overheads.
6. Low GP margins
Review your gross profit margins and know what’s left from sales after variable costs are deducted. Increase margins by focusing on rework and wastage, reducing stock shrinkage and improving team productivity.
7. Slow Sales
Identify ways to increase sales for example focus on customer retention, generating leads, improving sales conversion, customer transaction frequency and pricing strategies.