Cash-to-Cash Cycles in Warehousing

To run an efficient warehouse or third party logistics company, it is important to have cash available to conduct the day-to-day activities of running your business. The funds available for use for the day-to-day business is a measure based on the length of time the inventory is converted to cash. The faster the product flows through the cycle, the faster you have funds available to continue business.

The cash-to-cash cycle is the time that operating capital that is not available for use by your business. This makes it all the more important to fee up capital. To help you calculate the cash-to-cash cycles add the days that your cash is caught up in inventory plus receivables and deduct the days that cash is free for use. So, how do you get cash to be available faster? You need to lower inventory, force faster turnover of your inventory, which leads to a faster billing cycle. Important to the cash cycle is that receivables are processed immediately and collections conducted quickly so as not to delay income of funds. Also, consider delaying payment of debts, which equals additional operating cash. The idea is to pay upon the invoice due date rather than early. Those funds can either be used for additional operating funds or accumulate interest.