Measure the cash conversion cycle
The cash conversion cycle is days sales outstanding (DSO) plus days inventory outstanding (DIO) minus days payables outstanding (DPO). Tracking it monthly shows exactly where cash is tied up.
Receivables
- Bill promptly and accurately, with recurring invoices automated
- Set clear credit terms and credit limits, and screen new customers
- Follow up on overdue accounts on a fixed schedule, escalating when needed
Payables and inventory
- Negotiate payment terms that match how quickly you collect
- Pay on the due date, not early, unless a discount is worth it
- Review slow-moving and excess inventory and set safety stock levels by item
The 13-week cash forecast
A rolling weekly cash forecast for the next 13 weeks gives early warning of shortfalls and supports conversations with banks and investors. Update it every week against actual bank balances.
This article is general information, not accounting, tax or legal advice. Rates, thresholds and effective dates should be confirmed with the official sources (IFRS Foundation, tax authorities, regulators) or your adviser before acting.