Cash Conversion Cycle

What this topic is

The cash conversion cycle is the number of days your cash is trapped between paying for a sale and collecting from the customer, built from inventory days, collection days, and supplier-payment days.

Why it matters

It decides whether growth drains your cash or funds itself. A short or negative cycle lets customers and suppliers finance your growth for free; a long one forces you to hold or borrow cash.

Who should learn it

Any product or inventory business, and any owner who wants to understand exactly how much cash growth will demand before revenue arrives.

What you will understand

• Break the cycle into its three parts: inventory, receivables, payables
• Calculate how many days of cash your operations tie up
• See how real companies run negative cycles that fund their growth
• Pull the three levers that shorten the gap

Prerequisites

• Hidden Costs per Transaction
• Fixed Costs versus Variable Costs

Common misconception

"Two businesses with the same profit per sale need the same amount of cash." Not at all. The one that collects before it pays can grow on almost no cash, while the other needs a war chest.