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What is cash operating cycle?

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What is cash operating cycle?
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Savio Cabral
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savio13
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Red face What is cash operating cycle? - June 14th, 2009

The operating cycle can be shortened by the following means.

1. Raw materials procurement:
One should have a good supply network. This means that he should have a supplier who can provide him with his raw material requirement at the right time, place and in the required quantity at minimum amount of time. Thus this also implies that he should be in possession of automated machines in case the raw materials are large and bulky .this helps in reducing the time required for the transport and movement of the goods from one place to another.

2. Production process:
In the production process there should not be any time lag from the time of actually receiving the raw materials and the starting of production process. This means as soon as the materials arrive they should be introduced in the production process. This therefore meant that the company will be following the just in time policy(JIT) which simply means that the requirements of the company will be fulfilled at the time required thus reducing the work in progress and thus increasing the efficiency of the company.

3. Finished goods:
The goods once produced should be held in the company’s possession as the company’s capital would be locked up in these goods. Thus it is essential that the company sell all these finished goods as soon as possible so as to allow the company reacquires its capital employed in the operating cycle.

4. Receipt of sales:
The receipts of the money from the debtors as soon as possible so as to regain the money along with the profits.

This is how the operating cycle operates along with how it can be improved so as to enable the company to regain the money invested in the production of the goods being produced.

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