How to shorten the cash cycle
Collect sooner, hold less, pay later: the three ways to free cash from the working capital cycle, and what each one risks.
Task 1Three levers3 questions
A shorter cycle means less cash tied up. There are three levers, one for each part of the cycle.
- Collect sooner
- invoice on the day of delivery, chase on the due date, ask for a deposit
- Hold less inventory
- order smaller amounts more often, clear slow lines
- Pay later
- agree longer terms with suppliers, and use the full terms you have
Each lever has a cost. Chasing hard can upset customers, thin inventory risks empty shelves, and paying later than the agreed terms risks losing the supplier.
Task 2Mei's plan4 questions
Task 3A discount for paying early2 questions