Optimize Your Cash Conversion Cycle

Ways to Optimize Your CCC

Here are some thoughts on ways to optimize your Cash Conversion Cycle (CCC):

1. Tighten your inventory levels, if you carry inventory.You can do this in several ways: reduce inventory; enlist the services of a fulfillment partner to reduce inventory costs; or, optimize inventory levels and timing of delivery based on your data. (This is known as a "Just-in-time" inventory method.) Note that carrying inventory—which you often have to pay for upfront—coupled with giving credit terms to customers is the worst of both worlds, as this creates a very long CCC.
2. Do faster invoicing.Invoice more frequently instead of waiting until the end of the month.
3. Consider the timing of how you get paid.Some businesses get paid upfront before rendering a service; others get paid at the point of sale but may have to stock inventory. Consider those variables when you're doing your own CCC calculation.
4. Ask customers for upfront payments or partial payment upfront.You can also offer payment discounts for upfront payments. This may work in some industries and with clients who value this. Sometimes, all you need to do is ask.
5. Tighten credit terms with customers.We like to start with 15 days and negotiate from there.
6. Optimize collection procedures.Discussed in Chapter 7. (This is a big needle mover!)
7. Negotiate better payment terms with suppliers.Explore supplier financing.
8. Streamline operational efficiencies.Look for friction in how work gets billed, fulfilled, and collected.
9. "Measure & Manage."Use a cash flow management software or monthly calls with a financial consultant or your internal team to help you move the needle on CCC.