Blog & Resources

Improvements that can be made on the 3 parts of your Cash Conversion Cycle (CCC).

Going on from our previous blog – CCC

The 3 areas of your CCC are:

  1. DIO: Days Inventory Outstanding
  2. DSO: Days Sales Outstanding
  3. DPO: Days Payables Outstanding

In an ideal world we want DIO and DSO to be as short as possible and DPO to be as long as possible.  This will give the shortest CCC possible.

DIO - The longer it takes to sell you inventory the greater the CCC number.

Improvements to be made.

  • Turn the inventory over faster.

  • Use a Just In Time Inventory Management System, i.e., inventory is delivered just when it is required.

  • Remove slow moving items of inventory from your selection.

  • Have an inventory management system in place that enables you to categorise your fast and slow moving items.

  • Ensure obsolescent stock or damaged stock is kept to a minimum.

  • Maintain a good relationship with your suppliers to ensure fast delivery times and good pricing.

  • Consider ordering fast moving items in bulk to take advantage of pricing.

  • Using reliable inventory management software that not only accurately reports what inventory is on hand but also the number of days it has been held for and how much of it you sell.

DPO – The longer the number of days that you pay your suppliers the greater the CCC number

Improvements to be made.

  • Ensure that tax invoices (including any adjustments) are entered your accounting software on regular and timely basis.

  • Where appropriate request extensions to pay.  This should be done while been mindful of maintaining a good relationship with your creditors so that your price and service times are not affected.

  • If a price reduction is available for buying in bulk consider this, but also consider the impact that it might have on your DIO.

  • Provided the are no additional costs see if you can pay by credit card.  This will effectively give you an additional 30 days at least before you have to part with your cash. 

DSO – The shorter the number of days it takes for your customers / clients to pay you the better the CCC number.

Improvements to be made.

  • Offer a variety of payment methods including:
    1. Credit card
    2. Cheque
    3. Direct Debit
    4. B Pay
    5. Direct Credit
    6. Cash

  • Use Statements on a regular basis.

  • Have clear trading terms outlined on your invoice / terms of trade.

  • Contact my email and phone anyone overdue.

  • If possible obtain a deposit before releasing the goods or providing the service.

  • Ensure you have direct contact with the person authorizing the payment of your invoice.

If you would like to discuss further please contact us:
 McNamara and Co - Chartered Accountants, located minutes from the Melbourne CBD
 Phone +61 3 9428 1062

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