According to the Cash Flow Cycle, is it possible to receive payments for goods y

Question

According to the Cash Flow Cycle, is it possible to receive payments for goods you sell before paying for the raw materials used to produce those goods?

A) Yes, as long as the time in inventory is minimized, and your customers pay you quicker than you pay your suppliers

B) No, this is impossible and is called the "Cash Flow Cycle Conundrum"

C) No, but you could receive payments on the same day you need to pay for the raw materials

D) Yes, as long as your inventory is always as close to 0 as possible

Explanation / Answer

The cash conversion cycle (CCC) is a metric that expresses the length of time, in days, that it takes for a company to convert resource inputs into cash flows. The cash conversion cycle attempts to measure the amount of time each net input dollar is tied up in the production and sales process before it is converted into cash through sales to customers. This metric looks at the amount of time needed to sell inventory, the amount of time needed to collect receivables, and the length of time the company is afforded to pay its bills without incurring penalties

B) No, this is impossible and is called the "Cash Flow Cycle Conundrum"

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