What is Cash to Cash Cycle?
Cash to cash cycle time is the time lapse between payment to suppliers and getting payment from the customers.
Every business exists to provide a tangible or intangible product to the people in need and make money out of those provisions in the form of profit.
A company has to invest money in the business. There are 2 types of investments – Asset Capital and Working Capital.
When a company spends money on creating an infrastructure, we call it as Asset capital.
When it spends money to buy input materials, labour and other recurring expenses we call it as Working capital.
How to Measure?
Cash to Cash Cycle = Customer payment date – supplier payment date.
Importance
Lesser the C-to-C cycle time, healthier will be the organisation. Lesser C-to-C time means faster circulation of money in the business. This, in turn, means higher earning capability of the business.
In Lean, we work primarily to reduce the cash to cash cycle time by reducing the production lead time or order lead time.