How do you balance the trade-offs between profitability, liquidity, and growth in your CCC strategy?

is also part of the working capital cycle. cash............1)raw materials I 2)salAries & wages 3)other expenses 4)capital charges& provisions ALL TOGETHER MAKE UP THE COST OF PRODUCTION OF FINISHED PRODUCT-- WARE HOUSING & SELLING, BILLING & COLLECTION COME UNDER MARKETING COSTS OPTIMISING /REDUCING THESE EXPENSES, INVOLVES REDUCING THE PRODUCTION CYCLE, INVENTORY CARRYING, COLLECTION OF DEBTORS, AVAILING MAXIMUM CREDIT FROM SUPPLIERS, BANK CREDIT,etc.COLLECTION CAN BE IMPROVED ALLOWING CASH DISCOUNT TO CUSTOMERS,(THIS SHOULD BE SHORT)ENJOYING DISCOUNT FROM SUPPLIERS (LONGER PERIOD),THESE MAY HELP TO LOWER CCC.

Some important aspects to consider in managing CCC: - Industry average CCC vs. your company's CCC. If there is a wide variance wherein your company's CCC is higher than peers/competition in the same industry, there are levers which need to be unlocked to improve CCC - Identify each of these levers to improve your company's CCC. Either by maintaining lower inventory holding periods or providing stricter credit terms to customers without compromising materially on profitability since faster collection cycles come with cash or similar discounts. Alternatively, it could mean paying suppliers with a longer credit period to utilize the working capital for business expenses and thereby, improving the overall CCC .

Hay aspectos importantes a tener en cuenta para darle un buen manejo al CCC: 1-Realizar seguimientos trimestrales a los inventarios de baja rotación y obsoletos para validar acciones de salida como pueden ser: ventas promocionales, creación de productos en combo o con partes de ese inventario que ayude a la salida, venta de saldos, entre otros. 2-revisar el proceso de gestión de crédito y cobranza, ajustando los tiempos de aviso previo y continuo a los clientes para el recaudo, contactar al cliente para hacerlo parte de la estrategia de recaudo, y por último realizar labores ejecutivas de cobro para disuadir al cliente del no pago. 3-lograr nuevas negociaciones con proveedores y acreedores para manejar mejores condiciones de pago.

Consider the following factors while balancing inventory holding with profitability: - Seasonality in the business - peak season requires higher inventory to avoid stock-outs while the lean season can be managed with lower inventory - Volatility of Raw Material and Finished Goods prices: Higher the volatility, shorter contract terms with suppliers (for Raw Material) and customers (for Finished Goods) allow the prices to be renegotiated at regular intervals instead of being locked in at fixed prices for a long term period. - Supplier Concentration: Avoid very high concentration with a few suppliers in order to maintain bargaining power for inventory procurement and avoid risk of higher prices due to lack of alternative sourcing options.

Efficient inventory mgmt directly impacts liquidity & profitability. Ways to reduce DIO within your CCC: Optimize Inventory Mgmt: Execute just-in-time (JIT) inventory practices: JIT ordering minimizes storage costs & reduces the obsolescence risk. Order & receive inventory only when needed, aligning with demand fluctuations. ABC Analysis is a another method in inventory mgmt that aids streamline stock levels & avoid overproduction. Use demand forecasting: Accurate predictions aid maintain optimal inventory levels. Avoid overstocking/stockouts by adjusting orders based on anticipated demand. Lowering your DIO can impact profitability & growth if it leads to stockouts, compromised qly or client dissatisfaction. Finding the rt balance is key.

Ways to improve AR management (DSO): Review Credit Policies: Regularly assess your credit policies: Set clear terms for pymt, credit limits & creditworthiness. Balance risk & opportunity to keep healthy cash flow. Implement automated invoicing systems: Reduce manual errors & delays. Send invs swiftly to accelerate pymt cycles. Negotiate pymt terms: Collaborate with clients: Extend favorable payment terms where possible. Balance client needs with your cash flow requirements. Offer early payment discounts: Encourage prompt pymts: Provide incentives (e.g., discounts for early settlement). Boost liquidity while maintaining profitability. Be proactive in collections: Regularly follow up on OVD accounts. Use reminders, calls & personalized comm.

One way to shorten the CCC and improve your liquidity is to extend your DPO, here's how: Extend pymt terms: By negotiating longer pymt terms with suppliers, u can improve liquidity. This allows you to hold onto cash for a longer period b4 settling payables. Early pymt discounts: Take advantage of them for early payments. This balances liquidity & profitability. Purch consolidation: Combine orders to negotiate better terms with supplier. Streamlining purchases improves DPO. Trade Cr. & Suppl Financing: Explore these options. Balancing act: However, striking the right balance is key. Excessively long DPO may strain supplier relationships & impact their cash flow. It’s key to keep healthy vendor partnerships while optimizing liquidity.

Monitoring & adjusting CCC strategy involves critical thoughts related to profitability, liquidity & growth. Here how to do it CCC Overview: It measures the time it takes to convert RM into cash from sales. Components: DIO, DSO, & DPO. Trade-Offs: Longer CCC boosts profitability (efficient operations). Shorter CCC adds to liquidity but may reduce profitability. CCC impacts wkg cap. during expansion. Monitoring: Regularly monitor CCC trends over time. Benchmarking: Compare CCC agst industry peers. Financial Ratios: Assess liquidity ratios (current & quick ratio). Adjustment strategies: Optimize Stock levels (reduce excess stock). Tighten Cr. policies to reduce DSO. Extend pymt terms(increase DPO). Align adjustments with bus. goals & context.

Don't bury your head in the sand as the problem will not go away. My five top tips: - prepare a simple cash flow forecast showing all the ins and outs. I appreciate that timings may differ, but laying it all out signposts potential problems ahead. - invoice clients as soon as you can, not at the end of the month. - automate your invoicing, collection process and bank receipts. - check your profitability. Are you making a profit? On all lines/projects? Ditch the unprofitable ones - they lead to problems further down the line. - reveiw your numbers every month. Are you making as loss? Monthly eyes on your numbers means you can take action sooner. A bonus tip! - pay on time. Late payments cause huge problems for everyone.

To improve your cash flow, automate your invoicing and, crucially, your renewals, ensuring that you incorporate a Consumer Price Index (CPI) adjustment at the end of each year. For accounts receivable (AR) beyond 60 days, start to categorize the AR for example, by customer credit issues, customer satisfaction concerns, incorrect addressee, etc. This categorization will enable you and your sales and customer service representatives to effectively address the AR. Most importantly, proactively monitor your AR aging closely and prevent any AR from exceeding 60 days.

To balance profitability, liquidity & growth in your CCC strategy, consider these steps: Accelerate DSO (Days Sales Outstanding): Improve AR mgmt to collect receivables faster. Methods incl. Cr. policy review, inv automation, early pymt discounts & effective collection efforts. Optimize Inventory Mgmt: Apply just-in-time inventory practices to reduce DIO (Days Inventory Outstanding). Use demand forecasting & inventory reduction programs to lessen storage costs & obsolescence risk. Negotiate supplier terms: Extend DPO (Days Payable Outstanding) by negotiating favorable pymt terms with suppliers. Balance longer pymt cycles with maintaining strong relationships. Remember, a well-balanced CCC enhances efficiency & supports sustainable growth!