PO, it’s better for your CCC if you have a longer time to pay for inventory. Still, it’s important to manage this strategy carefully to balance the potential disadvantage of the stress it puts on your supplier relationships against the benefit to your cash flow.
2. Modify Your Accounts Receivable Payments
It may be a viable option for your business to request a deposit or upfront payments. Immediate payments increase your cash flow and improve the cash conversion cycle.
Using an automated accounts receivable system is also an efficient way to improve cash flow because it leverages your return on investment. Lager changes, such as changing banking systems or improving supply chains, may take a long time and cause disruptions.
A/R solution is simple and provides long-term benefits.
3. Disburse Your Accounts Payable Slowly
Paying your invoices according to the terms agreed with the suppliers is recommended, but you won’t benefit from paying early. It increases your cash on hand if you disburse your AP later.
So, if you want to increase your cash on hand, you can set up an accounts payable management system with the help of your accounting department.
Such a system will be where all invoices are paid close to the due dates rather than early.
4. Evaluate Vendor Stability
Financially healthy vendors lessen the risk of supply chain disruption, which may affect your top and bottom-line revenues.
Moreover, reliable vendors make it easier to improve production and the supply chain. All these help improve your cash conversion cycle.
For instance, if you can rely on a vendor to deliver on schedule or as promised, it becomes easier to optimize production campaigns and limit the time the inventory sits until it's sold.
Related Reading: Streamline Your Finances: Effective Small Business Accounting Tips
5. Launch a Pre-Order Sale
Offering pre-orders is an effective and easy way to collect cash upfront before paying for the inventory. It likewise helps you better predict demand.
The biggest advantage of a pre-sale is there’s no expectation from the buyers that they will receive the things immediately. This gives you time to accept an unlimited number of orders without fulfilling them right away.
Then, you may utilize the data to forecast the inventory you need without risking over-ordering. In the same way, you can use the funds already received during the pre-order process.
6. Improve Inventory Turnover
A lot of stock-holding companies have a significant working capital investment in inventory that’s only sitting in their warehouse. The faster you convert such an investment back into accessible cash, either by using them in the manufacturing process or selling the items, the better.
Business can improve their cash conversion cycle by turning over inventory faster. Cutting losses on slow-moving inventory items, even if they can be sold at big discounts, will free up valuable cash and eventually improve your CCC.
Other ways to improve your inventory turnover without harming stock availability are prioritizing inventory classification, reordering smarter, and knowing your inventory’s position in its product life cycle.
7. Make It Easier To Pay
Do your clients still need to visit you in person to send a cashier’s check? Do they still use a difficult payment processing system? If so, consider providing them with multiple payment options.
You may likewise make it possible for them to pick a payment date in a certain month that works for them. All these make it easier to sync their receivables and your payment cycles.
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What Role Do Accountants Play in CCC Improvement?
Accountants provide financial data that your company needs to make crucial decisions. They can help strategize invoice conversion plans and do wonders to increase your overall business’ bottom line.
Oftentimes, companies only look for accounting help when it’s too late. When that time comes, they cram to hire whoever can solve their problem quickly. Avoid that from happening, whether you’re running a small or large business.
With the help of