Strategies for managing the cash conversion cycle a

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Unformatted text preview: asonal funding strategies, depends on management’s disposition toward risk and the strength of its banking relationships. Strategies for Managing the Cash Conversion Cycle A positive cash conversion cycle, as we saw for MAX Company in the earlier example, means the firm must use negotiated liabilities (such as bank loans) to support its operating assets. Negotiated liabilities carry an explicit cost, so the firm benefits by minimizing their use in supporting operating assets. Minimum negotiated liabilities can be realized through application of the following strategies: 1. Turn over inventory as quickly as possible without stockouts that result in lost sales. 2. Collect accounts receivable as quickly as possible without losing sales from high-pressure collection techniques. 606 PART 5 Short-Term Financial Decisions 3. Manage mail, processing, and clearing time to reduce them when collecting from customers and to increase them when paying suppliers. 4. Pay accounts payable as slowly as possible without damaging the firm’s credit rating. Te...
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