Applying Working Capital to Your Cash Conversion Cycle

Healthy cash flow is critical to the success of a business's operations and growth. While many businesses have historically been reluctant to leverage capital to fuel their needs, others have found financing to be a smart, economical, and powerful tool they use to strengthen new business relationships and optimize their Cash Conversion Cycle (CCC), a KPI used to separate healthy, fast growing companies from the rest. 

There are two significant ways food supply chain businesses can leverage capital and financing to enhance their CCC. The first is through adding more working capital to the mix, while the second is by speeding up their CCC. Let’s walk through each.

Adding more working capital to your CCC

By adding more working capital to the sourcing phase of your CCC your business has the ability to break into new commodities, strategically pursue new vendor/supplier partnerships, and/or secure access to in-demand inventory that can further be optimized during the sales cycle. 

Speeding up your CCC

The second, and often overlooked way to enhance your CCC, is to finance your sales invoices. By shortening your Days Receivable Outstanding (DRO), and unlocking working capital that’s typically out of play due to longer customer payment terms, you have instant liquidity. Not only does financing your invoices help you weather your cash flow dips, your business has the option to reinvest that working capital back into your sourcing and sales operations, further fueling your CCC and maximizing outcomes.

Investing time in understanding your business’s CCC and how to improve it, is one of the best moves a business owner or manager can make. By breaking down your business operations into three key processes (sourcing, selling, and collections) you can focus strategies on how to better improve outcomes over time. 

Learn more about how to baseline, better understand, and improve your CCC with this guide, inspired by a spectrum of your peers. Download it today to get started.