Definition
What is Cash Conversion Cycle?
Days between paying for inventory and collecting cash from its sale.
The cash conversion cycle measures how long working capital is tied up: days inventory sits, plus days customers take to pay, minus days you take to pay suppliers. A long cycle means growth consumes cash even when the business is profitable on paper — a common cause of profitable companies running out of money. E-commerce operators shrink it with faster-turning inventory and supplier terms; agencies shrink it with deposits and shorter payment terms.
Formula
CCC = Days Inventory Outstanding + Days Sales Outstanding − Days Payable OutstandingExample
Inventory turns in 60 days, customers pay in 30, suppliers are paid in 45: CCC = 60 + 30 − 45 = 45 days of working capital per cycle.