What are some actions a firm can take to shorten its cash conversion cycle?

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What are some actions a firm can take to shorten its cash conversion cycle?

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What are some actions a firm can take to shorten its cash conversion cycle?

Explanation & AnswerSolution by a verified expert

Explanation

Some actions that a company can take through which it can shorten its cash conversion cycle are as follows-

The company can extend the amount of time required to make the payment for accounts payable outstanding. Lengthening the time period of accounts payable will shorter the cash conversion cycle.
The company can also convert its inventory into cash at a faster pace. Quickly selling of goods will shorter the cash conversion cycle.
The company can shorten the amount of time required to receive the payment for accounts receivable outstanding. Shortening the time period of accounts receivable will also reduce the cash conversion cycle.

Verified Answer

The company can shorten its cash conversion cycle by decreasing the average collection period or increasing the payable deferral period.

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