Final answer:
Improving the cash conversion cycle involves better inventory management, negotiating longer payment terms with suppliers, and speeding up receivables collection. Reinvesting in operational efficiency and sales capacity also plays a key role in effectively optimizing the cycle. These strategies combined can significantly enhance a company's cash flow and financial stability.
Step-by-step explanation:
To improve the cash conversion cycle, companies can engage in several strategies such as managing inventory more efficiently, extending payment terms with suppliers, and expediting the collection of receivables. Efficient inventory management can be achieved by adopting just-in-time inventory systems or improving demand forecasting, reducing waste and costs associated with excess stock. Extending payment terms with suppliers gives a company more flexibility in managing its cash outflows without impacting its operations. On the revenue side, faster collection of receivables can be facilitated by offering discounts for early payments, implementing stricter credit terms, or automating billing processes to ensure timely invoicing. Additionally, reinvesting profits strategically into areas such as technology upgrades, expanding manufacturing capabilities, or hiring can lead to more efficient operations and contribute to a shortened cash conversion cycle by enhancing productivity and potentially increasing sales.