Authors: Sari Monto; Leena Tynninen
Addresses: School of Industrial Engineering and Management, Lappeenranta University of Technology, P.O. Box 20, FI-53851 Lappeenranta, Finland ' School of Industrial Engineering and Management, Lappeenranta University of Technology, P.O. Box 20, FI-53851 Lappeenranta, Finland
Abstract: A shorter cycle time of working capital (CCC) frees cash from operations. Companies emphasise the meaning of efficient supply chain operations, but also customers can impact the length of the CCC. Working capital management affects customer profitability through the interest costs. If the reasons behind long CCCs of orders are known, managers can pay attention to them. This paper takes the working capital management research to the customer order level, and includes working capital in customer profitability studies. We have studied the reasons behind the long CCCs of certain customers in the context of the paper industry. Four customer-related reasons for a long CCC were found: long credit terms granted to customers, the payment behaviour of customers, problems with deliveries, and problems in invoicing procedures. The paper shows that a long CCC decreases profitability at the order level.
Keywords: customer profitability; cash conversion cycle; CCC; credit terms; payment behaviour; working capital management; customer orders.
International Journal of Applied Management Science, 2014 Vol.6 No.2, pp.118 - 135
Received: 08 May 2021
Accepted: 12 May 2021
Published online: 04 May 2014 *