The financial cycle is understood as the period during which the company's funds are in circulation and cannot be used in an arbitrary way. Also, the financial cycle can be defined as the period of time between the payment of accounts payable to the supplier and the receipt of payment from buyers for the shipped goods. To shorten the duration, you should first define its main stages.
Instructions
Step 1
Explore the main stages of the financial cycle. In general terms, they can be described as payment to the supplier, shipment, delivery, customs clearance, warehousing, production process, shipment to the buyer, delivery, deferred payment and receiving money from the buyer. Thus, by analyzing each of these stages of the financial cycle, you can determine the optimization ways aimed at reducing the duration.
Step 2
Optimize the production process of the enterprise. For this, equipment is modernized and automated, the optimal working hours schedule is determined, personnel are trained and other operations are performed that are directly related to the production process of the enterprise.
Step 3
Shorten the payable period. The duration of this stage depends on the deferred payments that are provided to the enterprise by suppliers. In other words, the sooner you pay off your existing debts, the sooner you can complete the turnover of funds.
Step 4
Reduce the duration of accounts receivable. It is determined by the payment deferrals that are provided to the buyers of your products. To shorten this period, it is necessary to select potential buyers who are ready to pay for the delivered goods on time and have good financial indicators: liquidity, stability and solvency. Correct wording of the terms of the agreement will also help to optimize the duration of accounts payable. Specify, for example, penalties or late fees.
Step 5
Analyze the rest of the financial cycle of your business and determine the best solutions to reduce its duration. For example, you can optimize the delivery of goods and raw materials, select suppliers and buyers who are located in the nearest settlements, and much more.
