How to Make your Working Capital Cycle Shorter?
It is the duration of time between purchasing goods and producing items, and the generation of revenue on selling those products.
The shorter this cycle, the quicker you are able to free up your money stuck in business working capital. Your company can look to make its WCC shorter by means of the following:
- Minimizing the credit period extended to your customers and reducing your average collection period in doing so. Giving discounts is one of the ways to improve the average collection period or debtor’s turnover ratio.
- You can try to streamline or improve your manufacturing process and focus on different ways to increase your sales to minimize the amount of time taken for stock to turn to sales. It is said that the earlier the inventory clearance, the better the cycle.
- A relatively better negotiation to boost the “credit period”, the total number of days you can wait before paying your invoice to your suppliers of goods and raw materials, can help reduce the WCC.