Which of the following actions are likely to reduce the length of a company’s cash conversion cycle? Select one: a. Adopting a new inventory system that reduces the inventory conversion period. b. Reducing the average days sales outstanding (DSO) on its accounts receivable. c. Reducing the amount of time the company takes to pay its suppliers. d. Statements a and b are correct. e. All of the statements above are correct.

e. All of the statements above are correct.

Explanation:

Cash Conversion Cycle Duration Significance

The greater the quantity of inventory the company purchases, the less cash it has on hand to pay bills. The more days a company's money is tied up in inventory, the longer the cash conversion cycle and the greater the number of days creditors must wait for their money.

Sufficient cash flow is incredibly important to the success of your business. It’s a critical metric in business health. The amount of available cash your business has on hand at any given time affects both your daily and long-term operations. Poor cash flow makes your day-to-day business operations more challenging and it also negatively affects your timeline on paying creditors.

Fortunately, there are ways to shorten your cash conversion cycle. Reducing the cycle length can even boost your bottom line through interest savings. This are the few ways:

1. Improve Your Cash Flow Management

2. Collect Your Accounts Receivables Faster

3. Manage your inventory more efficiently

4. Improve Your Accounts Receivables Process

5. Take advantage of your bank’s treasury management service

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