Cash Conversion Cycle Calculator
Calculate days sales outstanding, days inventory outstanding and days payable outstanding to get the cash conversion cycle, and see the cash each day of the cycle ties up.
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How long your money is someone else's
The cash conversion cycle measures the days between paying a supplier and collecting from a customer. It is the sum of how long inventory sits and how long customers take to pay, less how long you take to pay suppliers. A positive cycle means the business funds that gap out of its own capital. Growth then consumes cash rather than producing it, which is why profitable companies run out of money and why fast growing ones need financing they did not expect.
A negative cycle is a funding source
Some businesses collect from customers before paying suppliers, producing a negative cycle. Supermarkets do it: stock turns in weeks, customers pay immediately, and suppliers are paid in sixty days. Amazon built its early expansion on the same structure. In those businesses growth generates cash rather than consuming it, which changes the financing requirement of the whole company and is a structural advantage no amount of operational excellence replicates.
Each day has a price
The value of one day of the cycle is roughly daily revenue for receivables and daily cost of goods for inventory and payables. On a business with fifty million in revenue, a single day of receivables is about 137 thousand of working capital. Reducing days sales outstanding from fifty five to forty five releases over a million in cash permanently, without selling anything more. That figure is usually more attainable than the equivalent improvement in margin, and it is the calculation that makes a collections project worth funding.
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Frequently Asked Questions
What is a good cash conversion cycle?
It depends entirely on the industry. Retail and grocery frequently run negative. Manufacturing commonly sits between 60 and 100 days. Software with subscription billing is often negative. Compare against your own trend and direct competitors rather than a universal figure.
Should DSO use total revenue or credit sales?
Credit sales, strictly, since cash sales are collected immediately and dilute the measure. Many companies use total revenue because credit sales are not separately reported, which understates the true collection period for a business with significant cash sales.
Can extending payment terms to suppliers fix a cycle problem?
It improves the number and can damage the relationship, the pricing you are offered and your priority when supply is short. Stretching payables is the easiest lever and often the most expensive one in the long run.
Why does a growing company run out of cash?
Because each new sale consumes working capital before it produces cash. With a 70 day cycle, growing revenue by a million requires roughly 190 thousand of additional working capital that has to come from somewhere before the profit arrives.
How do I reduce days sales outstanding?
Invoice on the day of delivery rather than at month end, make the terms explicit before the sale, chase before the due date rather than after it, and offer a small early payment discount where the maths supports it. Most improvement comes from process rather than pressure.
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How to Use
Enter revenue, cost of goods, receivables, inventory and payables to get the cycle in days.
Disclaimer: This tool is provided "as is" without warranty of any kind. Results are for educational and utility purposes.
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