Cash to cash cycle time looks at the amount of time, usually days, of working capital a business has tied up in managing its inventory or supply chain. Like many metrics, the more efficient the cash-to-cash cycle time is, the fewer days an organization's cash is unavailable for use.
A cash-to-cash cycle time of one month or less would be considered a good time. On the other hand, a cash to cash cycle time of two to three months would show that an organization's cash is tied up and not available for use for what many industries consider to be a dangerous amount of time. Please note that the cash to cash cycle time can vary quite a bit between industries. With this in mind, it should be every organization's objective to reduce their cash to cash cycle time.
How to Improve Cash-To-Cash Cycle Time?
One of the primary ways that a company can reduce the amount of time that cash is tied up, is to optimize the inventory they have on hand. If cash is not tied up in inventory it is available for use. This is why continuous improvement strategies like lean are a very effective way to improve cash to cash cycle time. Be aware that improving your overall inventory strategy will require alignment of all parties including supply chain partners as well as finding and removing waste and creating a more streamlined organization. Improving order-to-cash processes will also reduce your cash-to-cash cycle time. As invoice processing and receipt of customer payments improves, the amount of time that an organization’s capital is tied up will improve as well. Three possible areas a company can look to improve their cash-to-cash cycle time are:
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