Improving your company’s cash flow


Acompany’s cash conversion cycle (CCC) — or “cash cycle” — is the key to maintaining a healthy level of working capital. When you buy and sell inventory on account, the CCC tells you how long it takes to turn that inventory into cash.

Your company’s CCC can indicate many factors that help or hinder the speed of the cash flow. There are three key variables you can control to improve cash flow in unexpected ways: DIO (days inventory outstanding), DPO (days payable outstanding) and DSO (days sales outstanding).

Seven ways to improve cash flow

Liquid Capital Business Funding offers these seven tips to shorten and improve the overall health of your cash cycle:

  1. Reduce your 30-, 60- or 90-day payment terms. By shortening your accounts receivable terms, you’ll lower your DSO and receive payment faster. However, be sure you don’t provide unfavorable terms that will risk losing sales or existing clients.
  2. Enhance supplier relationships. Create efficiencies in your DIO by taking advantage of just-in-time inventory practices so your goods only arrive when needed or through drop shipping so that a third party ships directly to the end customer on your behalf. You might also be able to ask for extended payment terms to have more time to pay the bills, which improves your DPO.
  3. Use smart and strategic financing. Being strategic with your billing and collections is one of the most accessible ways to improve your cash cycle, and you can use commercial finance solutions to dramatically shorten your DSO. It is possible to reduce a typical DSO of 30, 60, 90 or more days to as little as one day.
  4. Turn customer invoices into cash. Factoring — also known as accounts receivable financing — is an often overlooked way to reduce your DSO to as short as one day. Low DSOs are preferred, so by using this tip, you can get paid in a timely manner for customer invoices, which allows you to put the working capital back into your company.
  5. Leverage your inventory through asset-based lending. If your company has an established presence and a sophisticated, easily understood reporting system, then asset-based lending can help lower your cash cycle. Asset-based lending allows you to leverage inventory, equipment and real estate in addition to your accounts receivable, which in turn offers you access to more working capital. As your commercial finance partner, Liquid Capital provides you with funds based on the assets and your credit-worthiness.
  6. Purchase order financing helps close your working capital gap. To utilize purchase order financing, once you receive a purchase order from your customer, place a purchase order from your supplier. Liquid Capital will then provide your supplier with a letter of credit. Your supplier produces the goods, receives payment and ships the goods to your customer. An invoice is generated, and once the invoice is factored, the purchase order financing facility is repaid to Liquid Capital. This process extends the number of days you have to pay your accounts payable, which keeps cash in your company and increases your working capital.
  7. A purchase financing program is a quick solution to taking advantage of supplier deals. For companies with a strong credit rating but that may have maxed out bank loan options, the purchase financing program is a great solution for getting the necessary capital. The purchase financing program doesn’t tie up any working capital to finance the cost of payment, so you keep all daily operations intact while taking advantage of supplier business deals or discounts.

By shortening your cash cycle, you’ll be able to deliver on new orders, improve your operations timelines, pay staff on time and invest in new growth strategies. After reviewing this guide and doing your homework, you should be able to quickly pinpoint factors to improve your CCC. Next time you or your clients are faced with cash flow obstacles, you’ll know how to control, improve and maintain the right working capital.

Craving more information? Liquid Capital can help. Reach out to learn how to leverage commercial financing options to speed up your cash cycle and create much-needed liquidity.

For more information, visit www. or call (281) 957-9902.