The cash cycle is the time that passes from when you pay to produce or buy until you collect the sale. Reducing it frees up liquidity without seeking financing. The usual mistake is trying to improve cash flow by squeezing customers or cutting stock without a method, which can damage sales, service or margin. The practical approach is to tackle the cycle in parts, with measures that do not harm commercial relationships or delivery capacity.
First, measure the cash cycle across three blocks: collection days, inventory days and supplier payment days. The goal is not to “minimise it at any cost”, but to find a balance: collect sooner, hold less tied-up stock and pay within terms consistent with your negotiating power. If you reduce collection days and inventory without touching payment terms, cash flow improves. If you can also organise payments without damaging key suppliers, you improve it twice over.
Reducing collection days without losing sales. Start by segmenting customers. Do not treat someone who pays on time the same as someone who delays. For good customers, offer options that speed up collection without penalising the purchase — for example, a moderate early payment discount or direct debit. For slow customers, apply simple rules: credit limit, orders conditional on clearing outstanding balances and prior confirmation before supplying. This should not be framed as a punishment, but as a policy: “in order to continue supplying normally, we need the balance to be within terms”.
Next, fix operational leaks that extend collection times without anyone noticing. Three typical ones: invoicing late, invoicing with errors and failing to document what the customer needs to approve payment. If you invoice a week late, you have gifted a week of financing. If there is an error on the invoice, the customer holds payment and you enter a loop. For this reason, implement a rule: deliver and invoice on the same day or the next, and use an invoice checklist covering order, delivery note, prices and conditions. In project-based businesses, add a signed acceptance or sign-off document, because without acceptance the payment stalls.
Finally, use the cash cycle to decide priorities. If your bottleneck is collection, focus on credit policies and invoicing discipline. If it is stock, tackle turnover, minimum and maximum levels, and purchasing. Real improvement comes when you turn these levers into a weekly and monthly routine, not into one-off actions when the treasury is already under pressure.
Taking the next step is easier with specialist support. The Oficina Económica de Galicia supports you with personalised advice and free resources to help your business grow.
