Cashflow – How to speed up your Cash Conversion Cycle
In the next in our series of articles on how to improve your cashflow we take a look at the cash conversion cycle and actions you might be able to take to shorten it.
I think it’s safe to say that we all agree that turning what we do into good, hard cash as quickly and profitably as possible is one of, if not the most important thing we can do in business.
Many people seem to think that turning work into cash starts and ends with a credit control process, but in reality there are things we can do much, much earlier in the cycle of business to positively impact our cashflow.
Improve your Sales Cycle
The longer it takes to convert a prospect into a buyer, the more it costs, and the longer it will take for you to be paid. This is equally true whether you sell on a business to business basis, or even if you run an e-commerce website and sell directly to consumers.
The shorter, and better your sales cycle, the faster you convert your products and services into cash.
There are many things you can do to improve your sales cycle, the first of which is simply to properly measure it:
How long does it take from the first time a potential client makes contact until their first purchase?
And do you know your (true) conversion rate from initial enquiry to actual purchase?
If these are things you are not yet measuring, then start now, and that alone will provide some much needed focus which in my experience has led to immediate improvements at all levels.
Once you know your numbers and are measuring them as standard, then we can look to introduce some strategies to reduce the time taken and increase the conversion rate…
Improve your Production and Purchasing Cycle
Slow production cycles or purchase orders taking too long to complete can be a real challenge for cashflow, especially if goods are to be paid for in advance, or you have significant funds invested in capital equipment. A focus on business process optimisation can help eliminate non-productive time, rework, travel time and other administrative aspects which delay the conversion of an order into cash.
For more on this topic there is an excellent article in Industry News on How to Optimize your Supply Chain to Improve Cashflow
Improve your Inventory or Stock Cycle
By focusing your team on ranging and selling higher margin, faster moving stock, you can really start to drive improvements in your cashflow.
If you are holding too much or obsolete stock, then this should be converted into cash as quickly as possible…
This is one of the rare occasions when we believe a discounting strategy is worthwhile!
Improve your Delivery Cycle
The faster (and better) you deliver your product or service to your clients, the more quickly you will get paid.
If you sell physical products can you offer next day delivery?
Or if it’s a service you’re selling, just like the sales cycle above, are you monitoring and tracking your turnaround times?
Putting some targets in place and giving your clients a guarantee will certainly focus the mind!
Improve your Invoicing Cycle
We see far too many businesses, especially service businesses, not invoicing straight away.
Simply ensuring every piece of work is invoiced at the right time will improve the time taken between orders being placed and you being paid.
Do also bear in mind your clients’ payment cycles when raising your invoices – if they tend to pay on 30 days from month end, it is well worth your while ensuring your invoices are raised before the end of one month rather than allowing them to slip even by a day into the next month.
And make sure your invoices are accurate (and expected!) This increases the likelihood of them being paid punctually and without queries.
Improve your Payment Cycle
There are so many strategies a business can implement to get paid more quickly… start by having a credit control process!
But remember, a credit control process should not start after a payment is late – why not call your clients a day or so after the invoice has been sent, to check they have received it and were happy with the service they have received.
This has the benefit of turning what could later become a challenge into a great customer service exercise.
While you’re at it, how easy is it for clients to pay you??
We still receive invoices with no payment details on them – that just makes it harder work for us to make payment!
In this day and age of digital banking, with multiple apps available to aid easy payments there really is no excuse…
What actions have you recently implemented in your business to improve your cashflow?
What results have you achieved in this area?
We would love to hear and share your stories!
Any thoughts, questions or comments as always will be gratefully received via any of our social channels, phone, email, or of course via the website contact us page – we look forward to hearing from you!