---
title: "Cash conversion cycle"
description: "What the cash conversion cycle is, how to calculate it from inventory days, receivable days and payable days, what a negative cycle means and a worked example."
canonical: https://ledgeriano.com/glossary/cash-conversion-cycle
language: en
publisher: "Ledgeriano"
updated: 2026-11-06
---

# Cash conversion cycle

> What the cash conversion cycle is, how to calculate it from inventory days, receivable days and payable days, what a negative cycle means and a worked example.

The cash conversion cycle (CCC) is the number of days between paying suppliers for inventory and collecting cash from customers for the goods sold. It equals days inventory outstanding plus days sales outstanding minus days payables outstanding. The shorter the cycle, the less cash a business needs to fund its day-to-day operations.

Each component points to a lever: sell stock faster (lower DIO), collect from customers sooner (lower DSO) or agree longer supplier terms (higher DPO). A growing business with a long cycle needs more [working capital](https://ledgeriano.com/glossary/working-capital) for every extra unit of sales, which is why profitable companies can still run short of cash.

Some retailers and marketplaces have a negative cycle: customers pay at checkout, stock turns quickly and suppliers are paid later, so suppliers effectively finance growth. Calculate your own cycle with the [cash conversion cycle calculator](https://ledgeriano.com/tools/cash-conversion-cycle-calculator).

```
CCC = DIO + DSO - DPO
DIO = Average inventory / Cost of goods sold × 365
DSO = Average receivables / Revenue × 365
DPO = Average payables / Cost of goods sold × 365
```

## Example: a wholesale distributor

A distributor holds stock for 61 days, collects from customers in 45 days and pays suppliers in 30 days. Its cash conversion cycle is 61 + 45 - 30 = 76 days. Negotiating 45-day supplier terms would cut the cycle to 61 days and free roughly 15 days of purchases in cash.

### What is a good cash conversion cycle?

Shorter is better, but compare within your industry. Supermarkets can be near zero or negative, while manufacturers of complex equipment may exceed 100 days.

### Can the cash conversion cycle be negative?

Yes. It means the business collects from customers before it pays its suppliers.

Guide: https://ledgeriano.com/guides/financial-statements