The technical description in management accounting, of the cash conversion cycle (CCC) is it measures how long a firm will be deprived of cash if it increases its investment in resources, in order to expand customer sales. It is thus a measure of the liquidity risk entailed by growth.
Quite simply this is the time it takes from when you spend €1 to invest in resources or products, to when you can get that euro back from your customer. If your business is buying inventory or making products, you have to invest cash in advance before you can sell that item to a customer and get paid. In a service business this investment is often in salaries and how long it takes for you to invoice and get paid for the services delivered.
There are four components to a companies cash conversion cycle : the Sales Cycle, Production & Inventory Cycle, Delivery Cycle and Billing & Payment Cycle.
Depending on your industry each of these elements will have a varying impact on your CCC.
We work with you to manage and improve your cash conversion cycle, find the right balance between profitability and growth for your business. There are a number of simple ways to improve the cash in your business including:
- Eliminating mistakes
- Shortening cycle times
- Improving your business model
Complete the free 4D assessment tool – to find out they biggest pain points in your business and how working with our coaches could help increase your businesses oxygen – CASH.