It’s not often that accounting professionals get to wear a cape and be the hero of the story. There aren’t many fairy tales in which a big accounting firm transforms into a business operator, revolutionizes the collection process, and gets a day named after them in their hometown.

But make no mistake: witnessing the cash conversion cycle in action—truly experiencing it—is nothing short of magical. The cash conversion cycle (CCC) is something you have to “feel” to understand truly. We encountered its wonders firsthand last year. As the CFO of a software company, we reduced our Days Sales Outstanding (DSO) from 55 days to 37 days in just one year. That’s an 18-day improvement, or 33%. Through strategic negotiations, we also increased our Days Payable Outstanding (DPO) from 35 days to 47 days. Since we don’t produce any physical products, we had no inventory. This meant our Cash Conversion Cycle was now a negative 10 days.

From Tactical Changes to Real Results

So, what did this all mean? As a company that operates at a cash loss, this allowed us to hire three more people over the course of 12 months. These new hires were developers who helped us launch new products faster and increase our revenues.

Let’s get into the details. How did we achieve this?

Adjusting Customer Agreements

First, we modified our “off-the-shelf” customer agreement. Every company has one, and it probably hasn’t been updated in quite some time. Instead of the standard 45-day payment terms, new customers were given a template with 30-day payment terms. If they accepted those terms, we would already have benefited from an extra 15 days in cash flow.

We had long accepted that 45 days was the industry norm. It may sound silly, but inertia was holding us back. Finally, we decided to take action and see who would complain.

The result: Only 5 out of 20 new customers voiced any objections.
The Lesson: Change it and see who reacts. It’s rarely as loud as you think.

Encouraging ACH Payments

Next, we aimed to convert customers who were still sending us physical checks to start paying us online via ACH. This process was challenging, as it required direct communication with the accounts payable teams of about 50 customers via email and phone. It was often difficult to find the right contacts, especially when dealing with large multinational companies. We sorted half of this out without picking up the phone, while the other half required some (daunting) real-life conversations.

What we discovered was that the person on the other end either escalated the issue to their boss—leading to more back-and-forth—or didn’t mind and agreed to the change. We had to resend a few W-9 forms (which seemingly always get lost—if you know, you know) and complete some additional paperwork, but it was well worth the effort.

After that, we took stock of the remaining customers who were still paying us with paper checks. We also set up a lockbox run by our bank in a central US location. While we are located in the Northeast, most of our customers were sending checks from their headquarters in the Midwest or South. We were able to choose a lock-box location closer to them, which reduced mailing “float” by a day.

We notified our customers about the new lock-box arrangement and provided them with the new mailing address for their checks. This change meant we no longer had to sift through a stack of envelopes and junk mail weekly to find and deposit checks via mobile deposit. This was an inefficient part of our previous process that we were determined to improve.

The days of losing checks were finally over! I hate to admit that it happened, but at the time, we received more than 50 checks a month, which was a headache to track and scan—setting up the new system freed up at least half a day each week for one of our accounting team members.

As luck (or math) would have it, the interest we earned on the accounts from deposits easily covered the fees associated with the lock-box. Checks were deposited an average of four days earlier and cleared our bank account about a day faster than mobile deposits, since the bank handled this process on our behalf.

The result: We dropped 18 days like a bad habit. 
The lesson: Never underestimate the power of small operational changes.

But we didn’t stop there.

Renegotiating Payables for Better Terms

The next aspect of the cash conversion cycle we focused on was payables. A significant portion of our cash was tied up in software payments to other tech companies that we used for building, marketing, and internal communication related to our product. The advantage of software expenses is that, if you are on annual contracts, each year presents an opportunity to renegotiate terms. So, during the renewal process, we began requesting quarterly payments for every software contract we signed. Most representatives we spoke to found adjusting payment terms much easier than negotiating pricing. As a result, we shifted from 80% of our contracts being billed annually and upfront to more than half being billed quarterly, with a few even in arrears.

The largest contract I renegotiated was with Salesforce, moving a substantial annual payment to a quarterly payment structure. This change proved to be a game changer, as a significant amount of cash no longer disappeared from our account at once but instead arrived in manageable chunks.

Additionally, it was worth noting that interest rates were rising at the time, so by keeping cash on hand longer, we could collect interest for a more extended period. This additional interest helped cover lock-box fees and enabled us to fund four more developer salaries that year.

The result: We improved our Days Payable Outstanding (DPO) by 17 days simply by requesting quarterly payments at renewal.
The lesson: Adjusting payment terms is often a more effective lever to pull in negotiations than asking for price reductions.

A Note on Inventory Management

There is an important aspect missing from my cash conversion cycle story: inventory. Since the products our company creates are digital (bits, not bites), we can’t directly address inventory. However, for most companies worldwide, managing inventory is a significant challenge.

Much like the saying “planes don’t make money on the ground,” you could say that “clothes in a warehouse” or “car parts on a shelf” don’t generate revenue either. Cash that is tied up in inventory can severely limit growth.

We have heard anecdotal reports that some major auto suppliers do not pay their suppliers until the items have been sold off the shelves. This reflects a powerful position in vendor relationships.

The result: Growth can actually endanger a company if it struggles with inventory management.
The lesson: Inventory management terms serve as a true test of power in vendor relationships.

Final Thoughts

Trust the process. Revamping my company’s cash conversion cycle was a journey, not a one-time event. It involved more tactics than strategies and wasn’t without frustrations. For instance, some suppliers continued sending paper checks to our old address for five more months. However, if you trust the process and maintain consistent communication and negotiation efforts, the results will be evident in the numbers.