Cash: how to optimize it?

The response: CCC (read further to understand)

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What is Cash Conversion Cycle?

Cash Conversion Cycle or CCC, calculates the number of days required for a firm to convert its investments in inventory and other assets into cash from sales.


Why choose the Cash Conversion Cycle?

- It traces the lifecycle of cash used for business activities, providing insights into operational efficiency.

- It enhances cash flow by improving at least one of the three components: DIO, DSO, or DPO.

- It helps identify inefficiencies in inventory management, receivables collection, and payables processing.


How is Cash Conversion Cycle calculated?

Formula: CCC = DIO + DSO - DPO
Where:
- DIO: Days of inventory outstanding
- DSO: Days sales outstanding
- DPO: Days payables outstanding


5 Ways to optimize the Cash Conversion Cycle

1. Implement JIT Inventory - Reduce excess stock, improve turnover
2. Use Electronic Invoicing - Expedite collections, offer early payment discounts
3. Negotiate Longer Payment Terms - Extend payables without penalties
4. Use Advanced Forecasting Tools - Predict demand accurately, align inventory levels
5. Implement a strong Cash Culture in your company - Involve all departments in optimizing cash.