Question

How can a business speed up its cash cycle which is part of cash management?

Answer 1

The cash conversion cycle = Days Sales outstanding + Days Inventory outstanding - Days Payable Outstanding

The business can speed up its cash cycle by reducing the cash conversion cycle by reducing Days sales outstanding, day’s inventory outstanding and increasing days payable outstanding,
This can be done by following:
1. Customers : Obtaining cash from customers should be fasters. This is done by providing cash discounts and other favourable terms to get cash in fewer days. This will decrease the day’s sales outstanding and helping reducing cash conversion cycle.
2. Suppliers: By negotiating with the supplier for favourable .extended credit days the cash will stay with firm for longer time and increase the days payable with credit terms of more than 90 days is suitable.
3. Inventory: Optimizing the levels of inventory and increase inventory turnover ratio will help in realising cash faster from Supplier and decrease the days inventory outstanding.

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