The Cash Conversion Cycle (CCC) answers: how many days does it take from when you spend cash on inputs to when you collect cash from customers?
CCC = Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding
A lower CCC means you turn operations into cash faster — freeing working capital for growth without additional financing.
Breaking down the three components
DIO — Days Inventory Outstanding
How long inventory sits before being sold.
DIO = Average Inventory ÷ COGS × 365
At $500k average inventory and $3M annual COGS: DIO = 60.8 days.
Lower DIO = faster inventory turns = less cash tied up in stock.
DSO — Days Sales Outstanding
How long it takes to collect payment after a sale.
DSO = Average Accounts Receivable ÷ Revenue × 365
At $400k average AR and $5M revenue: DSO = 29.2 days.
High DSO indicates slow collections — either loose payment terms, slow invoicing, or customers paying late.
DPO — Days Payable Outstanding
How long you take to pay suppliers.
DPO = Average Accounts Payable ÷ COGS × 365
At $200k average AP and $3M COGS: DPO = 24.3 days.
Higher DPO = you hold cash longer before paying = better for working capital.
Using CCC for business planning
High CCC businesses need more working capital (and often credit lines) to fund growth. Low or negative CCC businesses can grow with minimal external financing.
If you're planning to double revenue, your working capital requirement scales roughly proportionally with CCC — a 65-day CCC at 2× revenue means 2× the cash tied up in operations.
Calculate your CCC with the Cash Conversion Cycle Calculator.