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Cash Conversion Cycle CCC
Also called CCC, cash cycle, working capital cycle, net operating cycle.
The number of days between paying for inventory and collecting the cash from selling it — the size, in time, of the hole that working capital finance has to fill.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
Three measures added together, one of them negative.
Cash conversion cycle = DIO + DSO − DPO.
Reading the answer
A positive cycle means you fund the gap: cash goes out before it comes in, and the longer the cycle the more working capital the business permanently ties up. A negative cycle means your customers and suppliers fund you — common in restaurants, retail and any business paid at the point of sale that buys on terms.
Which product matches which problem
A long DSO with short inventory points at receivables finance: factoring, an AR line, invoice discounting. A long DIO points at inventory finance or a seasonal line sized to the build. A short cycle with volatile revenue is not a working capital problem at all, and a term product will fit it badly.
Where this one catches people
Financing the gap is more expensive than shortening it, and the shortening is usually available without anyone's approval.
Ten days off DSO on a business billing $2,000,000 a year frees roughly $55,000 of cash, permanently, at no interest cost. The levers are unglamorous: invoice on the day the job ships rather than at month end, get the purchase order number on the invoice so it is not rejected, deposit on order for custom work, call on day 31 rather than day 45, and stop shipping to accounts at 90 days. Each one moves the cycle.
Do that arithmetic before you price a facility against the gap, because the facility is sized on the gap you have, and you will pay for it every year. Then finance what remains, which is a smaller and cheaper problem.
Worked through
Illustrative only. Revenue $2,000,000. Cost of goods sold $1,300,000.
Average inventory $215,000. DIO = 215,000 ÷ 1,300,000 × 365 = 60 days.
Average receivables $290,000. DSO = 290,000 ÷ 2,000,000 × 365 = 53 days.
Average payables $150,000. DPO = 150,000 ÷ 1,300,000 × 365 = 42 days.
Cash conversion cycle = 60 + 53 − 42 = 71 days.
Daily revenue is 2,000,000 ÷ 365 = $5,479, so as a rough approximation the cycle ties up about 71 × $5,479 = $389,000 of cash at any moment.
Cut DSO from 53 days to 43 by invoicing on despatch and chasing at day 31: the cycle falls to 61 days and roughly $55,000 of cash comes back into the business, with no facility and no fee.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
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Cash Conversion Cycle — common questions
What does cash conversion cycle mean?
The number of days between paying for inventory and collecting the cash from selling it — the size, in time, of the hole that working capital finance has to fill.
Where does cash conversion cycle catch people out?
Financing the gap is more expensive than shortening it, and the shortening is usually available without anyone's approval.
Is cash conversion cycle the same as an interest rate?
Cash Conversion Cycle is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does cash conversion cycle apply to?
Working Capital, Business Line of Credit, Invoice Financing, Asset-Based Lending.
Is there a worked example of cash conversion cycle?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside cash conversion cycle?
Accounts Payable, Accounts receivable, Aging report, Cost of Goods Sold, Days sales outstanding.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.