As you can see from the focus of this newsletter, we want to get you recessionary-strong. How can you do this? How can you increase your cash conversion cycle?
Cash is royalty, and the more you have, the more you have options. How can you generate more cash flow even with the same revenue? Great question.
Get Your Cash Conversion Cycle in Order!
To generate additional cash flow fast, look closely at your Accounts Receivable. Have you ever optimized this? How are you getting paid now? Point of Sale? Check? Cash? In a service based business, you typically invoice and then get paid in the future. Enter the Cash Conversion Cycle.
The Cash Conversion Cycle
The cash conversion cycle (CCC) – also known as the cash cycle – is a metric expressing how many days it takes a company to convert the cash it spends on inventory back into cash by selling its product. The shorter a company’s CCC, the less time it has money tied up in accounts receivable and inventory.
By having a short CCC, your risk goes down significantly if your client or customer goes out of business.
How to Produce a Shorter Cash Conversion Cycle
You want to produce a shorter CCC, but unsure how to? Here are 3 surefire ideas:
- Offer a discount to outstanding receivables to pay earlier
Some people are motivated by a discount – any discount. Offer them a minor discount (2%) to increase your cash conversion cycle significantly and have cash in your account NOW versus 30 days from now.
- Request ACH Debit and Give a Discount
Get ACH Debit rights from your bank and ask your client/customer to automatically ACH Debit from their account in exchange for a small discount (or preferably no discount and tell them you’re changing business models). ACH Debit pulls money out of their account and into your account within 48 hours.
- Accept Credit Cards. No, Really.
Accept credit cards even if you never have before. Credit cards are authorizations to get money into your bank account NOW. Yes, they will cost a percentage of your fees, but it’s better to have money today versus 60 days from now.
Master Your CCC for Success
Whether you offer a discount to outstanding receivables, request an ACH debit, or accept credit cards, all of these will reduce your CCC such that you have more cash on hand to weather any storm.