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The payment terms extended to the company by its suppliers. Longer payment terms shorten the operating cycle, since the company can delay paying out cash. The order fulfillment policy, since a higher assumed initial fulfillment rate increasesthe amount of inventory on hand, which increases the operating cycle.
The factors influencing the operational cycle are the average collection period + the average period of inventory turnover. The higher the duration of these periods, the lower the cash flow from collection and the slower inventory flow. This means increasing the number of days needed for the company to reinvest the inflows resulting from its operating activities. Which reduces their chances of achieving additional profits for owners
The operating cycle is the average period of time required for a business to make an initial outlay of cash to produce goods, sell the goods, and receive cash from customers in exchange for the goods. This is useful for estimating the amount of working capital that a company will need in order to maintain or grow its business.
