Cash Conversion Cycle Explained
Cash conversion cycle = DIO + DSO − DPO. It is the number of days your cash is tied up between paying suppliers and collecting from customers.
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Formula
DIO = Inventory ÷ COGS × days. DSO = Receivables ÷ Revenue × days. DPO = Payables ÷ COGS × days. CCC = DIO + DSO − DPO.
Example
DIO 60.8, DSO 60.8 and DPO 54.8 days give a CCC of 66.8 days.
How to improve it
Cut inventory days, collect faster, and pay suppliers at (not before) the end of agreed terms.
Reading the number
A shorter or negative cycle means faster cash. Compare against your own history and peers in your industry.
Frequently asked questions
Yes, when you collect before you pay suppliers.
Usually, unless squeezing suppliers harms relationships.
Annual or quarterly totals, consistently.
General information, not tax, legal or accounting advice. Rules and rates change; confirm with a qualified professional. Only document real transactions.