Reducing Cash Conversion Cycle

Every day you reduce collection time is worth 365 days of improved cash flow. Let me show you the maths. Current state: $100,000 monthly revenue, 60-day collection time. Outstanding invoices: $200,000 (two months sitting there). Reduce collection by 20%: 60 days becomes 48 days. Cash released immediately: $40,000. You didn't make more sales. You didn't cut costs. You collected $40,000 faster by implementing systematic processes. The acceleration strategies that work: Invoice the same day work completes. Not Friday. Not the month-end. Same day. Add payment links to every invoice. One-click payment increases collection speed by 23%. Call before invoicing on projects over $10,000. Confirm satisfaction, address issues, create commitment. Set up automated reminder sequences at days 7, 14, 21, and 30. Friendly but systematic. Offer 2% discount for payment within 7 days on large invoices. Costs you $200 on a $10,000 invoice. Saves you $197 in opportunity cost. A business reduced collection from 67 days to 23 days in 90 days using this system. Released $86,000 in cash without changing anything else. Most businesses focus on growing revenue. Smart businesses focus on collecting faster.

I told a ₹60 crore company to slow down. Their CEO thought I’d lost my mind. "Akash, we’re growing 40% YoY. Why would we slow down?" I showed him one number. His Cash Conversion Cycle: 94 days. That means every new crore of revenue needed ₹26 lakhs of working capital just to sustain it. At 40% growth, he needed ₹6+ crore in additional working capital over the next year. He didn’t have it. His bank wouldn’t give it. And he was too small for PE funding. So every new order was actually making his cash position worse. He was growing himself into a wall. I said: "Don’t slow down revenue. Slow down your CCC." We spent 90 days fixing three things: — Renegotiated payment terms with top 5 clients (82 days → 55 days) — Cleared ₹1.4 crore in slow inventory — Extended payable terms with 3 vendors (15 days → 40 days) CCC dropped from 94 to 52. Same revenue. Completely different cash position. Growth without cash discipline is just running faster toward a cliff. What’s your CCC? If you don’t know, that’s the number to find this week. #cfo #jordensky

I watched a founder cry in a boardroom. ₹2 Cr revenue. CA-certified accounts. And he couldn't pay salaries that Friday. His P&L showed profit. His bank showed panic. Here's the thing nobody tells founders early enough 👇 Profit is an accounting opinion. Cash is a biological fact. You can be both profitable AND broke at the same time. It happens because of one number most founders never track: 𝐂𝐚𝐬𝐡 𝐂𝐨𝐧𝐯𝐞𝐫𝐬𝐢𝐨𝐧 𝐂𝐲𝐜𝐥𝐞 (𝐂𝐂𝐂) CCC = Days to collect from customers + Days inventory sits unsold − Days you take to pay vendors If this number is rising → you're silently funding your customers' businesses with your own money. 𝐑𝐞𝐚𝐥 𝐟𝐢𝐱 (𝐧𝐨𝐭 𝐭𝐡𝐞𝐨𝐫𝐲): → Collect faster - Offer 2% discount for early payment. Most customers take it. → Negotiate 45-day payables with vendors BEFORE you need cash, not during a crisis. → Track CCC monthly, not quarterly. The founder I mentioned? He had a 97-day CCC. The industry average was 45. He was essentially giving his customers an interest-free loan for 52 days every cycle. Profitable on paper. Dying in real life. What's your CCC right now? (Most finance folks reading this won't know. That's the problem.)

Sales sets payment terms. Procurement negotiates supplier terms. Operations manages inventory levels. Nobody's looking at the full picture. And then the CFO asks: "We had a great quarter. Why are we short on cash?" This is a Cash Conversion Cycle problem. And it's one of the biggest opportunities FP&A teams are missing. The CCC measures how long it takes your company to turn inventory into cash. Not revenue. Not profit. Actual cash in the bank. → How long inventory sits before you sell it (DIO) → How long customers take to pay you (DSO) → How long you take to pay your suppliers (DPO) CCC = DIO + DSO - DPO A company can grow revenue 20% and still run out of cash. Because growth eats working capital. You buy more inventory, you extend more credit, but your suppliers still want to get paid on time. The income statement says "great quarter." The cash flow statement says "we have a problem." I've seen companies shave 15-20 days off their cash cycle , not by cutting costs or raising prices, but by getting FP&A to connect those three levers. When FP&A tracks CCC as a strategic KPI and brings sales, procurement, and operations into the same conversation, you stop reacting to cash shortfalls. You start predicting them. That's not a small improvement. That's a transformation in how finance contributes to the business. Is your FP&A team connecting these dots? Or are the departments still making these decisions in silos?

Before Layoffs, Fix This One Invisible Cash Leak Cash flow problems aren't always revenue problems. They're timing problems. Last quarter, one of our portfolio companies was burning through their line of credit. Revenue was up 40%. Contracts were solid. Team was executing. But they were 90 days behind on collections while paying suppliers in 30. We didn't change their business model. We restructured when money moved through their system. Started collecting at 25 days instead of 31 and definitely not at 90. Same team. Same contracts. Same operations. Just better timing. Three months later, they had $2M sitting in the bank instead of their credit line maxed out. Here's what most people miss about cash flow: Your money is already there. It's stuck in the wrong places at the wrong times. The fastest improvements come from collecting what you've already earned and moving what you've already bought. That inventory sitting in your warehouse? It was purchased with cash months or years ago. Every day it sits there, that's cash you can't use to pay this month's bills. The timing gap between when you spent the money and when you'll get it back is killing you. Year-end is the perfect example of bad timing decisions. Most companies buy equipment in December to "save on taxes." You get a deduction. You also tie up cash for the next 12 months. Here's the timing play instead: Pre-pay next year's rent or bills in December. Same tax deduction. But now you free up cash every single month next year instead of locking it away in a depreciating asset. You can't pay bills with your truck You just shifted when cash leaves your account and turned a one-time hit into 12 months of breathing room. If you're looking at headcount cuts before you've analyzed your cash conversion cycle, you're missing the real problem. Your cash is there. You just need to know where to look.

When I talk with founders, the problem statement is almost always the same: capital. It’s not that the business doesn’t work. It’s that cash is stuck in inventory, deposits, and receivables—and growth magnifies the problem. At woom bikes, I grew 300% year over year early on. Containers required down payments before shipping, tying up cash weeks before I could sell a single bike. DTC sales brought money back quickly, but retailers often took 30–90 days to pay. On paper we were profitable. In reality, cash was constantly tight. Here’s what I’ve learned: 1. Forecast cash, not just revenue. Build a rolling 12-month cash forecast that shows when money leaves (supplier deposits, freight, payroll, marketing) and when it returns (Amazon payouts, Shopify, retail checks). Growth doesn’t just expand revenue, it stretches your cycle. Without visibility, you won’t see the crunch until it’s too late. 2. Line up non-dilutive options early. Inventory financing, receivables financing, and working capital lines aren’t “bad debt”—they’re tools that buy you time. Used responsibly, they bridge the gap between paying suppliers today and collecting from customers tomorrow. The earlier you set these up, the better your terms. Wait until you’re desperate, and you’ll be forced into bad deals. 3. Continuously improve your cash conversion cycle. Negotiate supplier terms (30–60 days instead of prepayments), speed up receivables (shorter retailer terms or factoring), and increase inventory turns (sell faster, avoid sitting on stock). Every day shaved off your cycle is capital you don’t need to raise. Bottom line: Capital will always feel like the problem. But the founders who last are the ones who master their cash cycle, forecast with discipline, and surround themselves with options before they need them.

Most construction companies don't have a revenue problem. They have a timing problem. You're profitable on paper. The backlog looks healthy. But every other Friday you're moving money around, tapping the line of credit, or waiting on a client check to clear before you can run payroll. Here's what's actually happening: you pay your crew weekly or bi-weekly, but you bill monthly and collect 30-60 days after that. So you're fronting 6-10 weeks of labor costs on every job before you see a dollar back. When you have five jobs running simultaneously, you're essentially operating a lending business to your clients—except you're funding it with your own operating cash. Most owners think this is a "not enough money" problem. It's not. It's a cash conversion problem. Your money exists—it's just locked up in unbilled work and outstanding receivables while your payroll obligations hit like clockwork every week. This gap gets worse exactly when your business is doing well. Win three new projects? Congratulations, you just increased the amount of cash you need to front before any of it comes back. The fix isn't complicated, but it requires changing how you structure payment terms: Move to bi-weekly progress billing instead of monthly. Bill the day after your pay period closes. On any job over three weeks, this cuts your cash conversion cycle nearly in half. Require deposits before you mobilize—10-25% covers your first payroll cycle and changes the entire cash dynamic of the job. And stop starting multiple large jobs the same week. Stagger them. Your crew capacity might handle it, but your cash position can't. If you're constantly managing cash stress despite having good margins and a full schedule, the problem isn't your business model. It's your billing cycle.

The cash conversion cycle every CEO should know Revenue gets attention. Profit gets attention. Cash flow tells you what is really happening. That is why every CEO should know their cash conversion cycle. It tells you how long it takes for cash to go out and come back into the business. If that cycle gets too long, growth starts creating pressure. You can be growing. You can be profitable. And still feel tight on cash. That is what many CEOs miss. The cash conversion cycle shows you where cash gets stuck: • How long customers take to pay you • How long work in progress sits in the business • How quickly cash leaves through supplier payments If you want to improve cash flow, start here: • Lower inventory and work in progress • Reduce delays in invoicing and collections • Be more strategic with pricing and discounting • Look for 1% or 1-day improvements across the cycle If you can't measure it, you can't improve it. P.S. Do you know your cash conversion cycle?

Cash and EBITDA should feed each other. Not fight each other. I've worked with profitable companies that are dying from cash starvation. Their EBITDA looked great on paper, but their bank accounts were being bled dry. EBITDA without cash conversion is just a vanity metric. Smart companies don't just generate EBITDA, they weaponize it through a compounding flywheel: Operational Efficiency → Higher EBITDA → Stronger Cash Flow → Strategic Reinvestment → Further EBITDA Growth → Repeat. But most companies break this cycle optimizing for the wrong metrics. The three common mistakes I see: 1.) Chasing EBITDA Margin Over Cash Conversion: Companies celebrate 25% EBITDA margins while their cash conversion ratio sits at 40% growing the business into bankruptcy. 2.) Ignoring Working Capital as a Strategic Weapon: Receivables stretch to 90 days. Inventory turns 3x annually. Payables sit at 30 days. You're funding your customers' businesses while strangling your own. 3.) Confusing Growth with Value Creation: Revenue growth at 30% sounds impressive until you realize each dollar of growth requires $1.50 of cash investment. The Metrics That Actually Matter: (Track these religiously) - Cash Conversion Ratio: Free Cash Flow ÷ EBITDA (Target: 85%+) - Working Capital as % of Revenue (Lower is better) - Days Sales Outstanding (Faster is better) - Inventory Turnover (Higher is better) - Cash-on-Cash Return (The ultimate truth-teller) The Private Equity Reality Check: PE firms understand this viscerally. They don't buy EBITDA multiples, they buy cash generation machines. A company generating $10M EBITDA with 95% cash conversion will command a higher multiple than one generating $15M EBITDA with 60% conversion. Why? Because predictable cash flow is the foundation of enterprise value. Here's How to Fix Your Flywheel: Week 1-2: Audit your cash conversion cycle - Map every dollar from sale to collection - Identify the biggest cash drains - Benchmark against industry leaders Week 3-4: Implement cash flow forecasting 13-week rolling forecasts minimum - Scenario planning for best/worst/likely cases - Weekly cash flow meetings with your CFO Month 2-3: Optimize working capital - Negotiate payment terms with key customers - Implement inventory management systems - Extend strategic supplier payment terms Month 4+: Create accountability - Tie executive compensation to cash metrics - Dashboard reporting for cash conversion - Monthly board reporting on flywheel health EBITDA will get you meetings. Cash flow will get you valuations. EBITDA will get you credit lines. Cash flow will get you options. EBITDA gets you respect. Cash flow gets you results. Investors want to know your EBITDA story, but they're funding your cash generation reality. ------------ Please share your thoughts in the comments. Repost if you feel this will benefit your network. Follow me, Beverly Davis, for more strategic finance insights.

Do you agree that supply chain leaders should sell initiatives in terms of cash flow, not operations? Cash wins board approval. Every time. And that’s why most supply chain pitches fall flat. CFOs don’t care about planning acronyms: → They care about cash flow. → They care about working capital. → They care about the balance sheet. Inventory isn’t stock to them. It’s trapped cash. The smartest way to get a CFO’s attention is to show how your supply chain strategy directly impacts liquidity and financial performance. That’s why DDMRP resonates when framed the right way. Because it doesn’t just cut noise in planning, it cuts cash tied up in stock. Here’s how CFOs see the impact: → Releases working capital: Typical inventory reductions of 15–40% free millions in cash. → Boosts inventory turns: More sales with less stock, increasing financial productivity. → Protects revenue: Fill rates of 97–99% mean fewer lost sales. → Accelerates cash-to-cash cycle: Shorter lead times bring liquidity back into the business faster. DDMRP is a financial story about turning inventory into liquidity. #DDMRP #CircularSupplyChain #b2wise #ThinkFlow #LetsTalkCash