Inside Apple’s Cash Flow Machine

The inside story of Apple's Accounts Receivable

An analysis of Apple's business model to see how it drives cash flow & builds cash reserves

Bill Sarda

28th July, 2023

I have been an Apple fanboy since Jobs launched the iPhone in 2007. As a finance geek, I dug deep into Apple's finances and found something that blew my mind.

With a low DSO and high DPO, Apple has a negative cash conversion cycle. In 2022, it was 62 days. Essentially, Apple is financed by its suppliers!

Here is an inside story on how Apple's cash flow engine operates.

It all starts with Apple's DSO

Apple's DSO in 2022 was 25 days, compared to an average of 60 days in the consumer durables industry. Apple's average DSO for the last decade has remained ~26 days.

How is Apple able to consistently maintain such low DSO levels?

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Direct-to-consumer (D2C) model:

Direct sales via self-operated retail channels contributed to 38% of Apple's revenue, enabling the realization of cash immediately upon a sale. In comparison, the nearest competitor, Samsung, gets only 10% of its revenues from D2C sales.

Limits concentration of AR:

The probability of bad debt increases with the concentration of trade receivables in one industry. Cellular network carriers hold a majority of Apple's trade receivables. The company has reduced its receivables with cellular network carriers to 44% in 2022 from 63% in 2016.

Data-led credit management:

Credit risk assessment for end consumers who opt for Buy Now, Pay Later (BNPL) schemes is done in-house with past payment data and third-party data for quick and accurate credit decisions. The company also limits credit risk with credit insurance.

Apple sells stuff faster than others

On average, Apple takes 9 days to clear its inventory. While its nearest competitor, Samsung, takes an average of 99 days (that's more than 10 times better!).

Apple has an optimal product portfolio. On average, Apple has 34 active iPhone models (v/s 212 active phone models for Samsung). A lesser number of “best-selling” models enables Apple to have less cash tied to inventory, and simplify the supply chain and demand planning processes.

Also, Apple is best known for its contract manufacturing process, which allows it to keep capex costs low ($3.8 billion vs. Samsung's $41.3 billion), promote healthy competition between suppliers, and avoid component shortages. It also helps it have a steady DIO compared to its peers.

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Clout with suppliers

On average, Apple takes 83 days to pay its suppliers (Days Payable Outstanding). While the nearest competitor, Samsung, pays its suppliers in 23 days. With massive demand, an optimal product portfolio, deeper supplier relationships, and strong bargaining power, Apple has made this possible.

After all, it's Apple. But you can do it too!

Apple undoubtedly has a powerful brand value and hence commands a premium. Apple's ecosystem inspires users to purchase the company's full lineup of devices. This not only deepens the customer relationship but also improves repeat purchases and average order value, which in turn improves margins.

The average selling price of an iPhone is ~$1000, more than three times that of Samsung phones. With $51.4 billion cash on hand, Apple is a mammoth cash factory.

This is not something that happened overnight!

It was achieved by building strong supply chain systems, financial management practices, and automation technologies.

You can also replicate Apple's success in your business. The first step toward it is to benchmark your receivables performance against industry peers and choose the right AR automation solution.