What is the cash conversion cycle?
The cash conversion cycle, or CCC, is the number of days between a company paying for its inputs and collecting cash from its customers. It is calculated as days inventory outstanding plus days sales outstanding minus days payable outstanding. A shorter cycle means less cash tied up in running the business.
Also calledCCCcash cyclenet operating cycle
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- Formula
- DIO + DSO − DPO
- Measured in
- Days
- Shorter cycle
- Less cash tied up
How the cash conversion cycle is calculated
Take a manufacturer that holds stock for 50 days, collects from customers in 45 days and pays suppliers in 40 days: its cash conversion cycle is 50 + 45 − 40, or 55 days. For 55 days of every trading cycle, its own cash or borrowing funds the business. Service and software companies with no inventory use DSO minus DPO. The cycle can be negative when customers pay before suppliers are paid, as in many retailers and subscription businesses, so growth then produces cash rather than using it. Shortening it means selling stock faster, collecting sooner and paying on agreed terms rather than early. Finance teams track the three components monthly from the ledger; planning and treasury tools such as Pigment, Anaplan, Panax and Centime model how changes in terms or stock affect cash.
Common questions
Can the cash conversion cycle be negative?+
Yes, when a business collects from customers before it pays suppliers. Supermarkets, marketplaces and many subscription businesses run negative cycles, so their suppliers in effect fund their working capital.
How is days inventory outstanding calculated?+
Inventory divided by cost of sales for the period, multiplied by the number of days in the period. It shows how long stock sits before it is sold.
How can a company shorten its cash conversion cycle?+
Reduce stock levels, invoice and collect faster, and negotiate longer supplier terms. Each day taken off the cycle releases roughly one day of cost of sales in cash.
Software used to model the cash conversion cycle
PigmentCollaborative business planning across finance and operations.Profile →
AnaplanConnected planning across finance, sales and supply chain.Profile →
PanaxAI cash visibility and forecasting across multi-entity groups.Profile →
CentimeAP, AR, forecasting and banking in one cash flow view.Profile →
EmbatReal-time treasury with automated reconciliation and forecasting.Profile →Part of Accountio’s accounting technology coverage · Glossary
