CashconversioncycleFromWikipedia,thefreeencyclopediaJumptonavigationJumptosearchPartofaseriesonAccountingHistoricalcostConstantpurchasingpowerManagementTaxMajortypesAuditBudgetCostForensicFinancialFundGovernmentalManagementSocialTaxKeyconceptsAccountingperiodAccrualConstantpurchasingpowerEconomicentityFairvalueGoingconcernHistoricalcostMatchingprincipleMaterialityRevenuerecognitionUnitofaccountSelectedaccountsAssetsCashCostofgoodssoldDepreciation /AmortizationEquityExpensesGoodwillLiabilitiesProfitRevenueAccountingstandardsGenerally-acceptedprinciplesGenerally-acceptedauditingstandardsConvergenceInternationalFinancialReportingStandardsInternationalStandardsonAuditingManagementAccountingPrinciplesFinancialstatementsAnnualreportBalancesheetCash-flowEquityIncomeManagementdiscussionNotestothefinancialstatementsBookkeepingBankreconciliationDebitsandcreditsDouble-entrysystemFIFOandLIFOJournalLedger /GeneralledgerTaccountsTrialbalanceAuditingFinancialInternalFirmsReportPeopleandorganizationsAccountantsAccountingorganizationsLucaPacioliDevelopmentHistoryResearchPositiveaccountingSarbanes–OxleyActMisconductCreativeEarningsmanagementErroraccountHollywoodOff-balance-sheetTwosetsofbooksvteInmanagementaccounting,theCashconversioncycle(CCC)measureshowlongafirmwillbedeprivedofcashifitincreasesitsinvestmentininventoryinordertoexpandcustomersales.[1]Itisthusameasureoftheliquidityriskentailedbygrowth.[2]However,shorteningtheCCCcreatesitsownrisks:whileafirmcouldevenachieveanegativeCCCbycollectingfromcustomersbeforepayingsuppliers,apolicyofstrictcollectionsandtaxpaymentsisnotalwayssustainable.Contents1Definition2Derivation3Aims4Seealso5References6ExternallinksDefinition[edit]CCC=#daysbetweendisbursingcashandcollectingcashinconnectionwithundertakingadiscreteunitofoperations. =Inventoryconversionperiod + Receivablesconversionperiod – Payablesconversionperiod =Avg.InventoryCOGS/365 + Avg.AccountsreceivableSales/365 – Avg.AccountspayablePurchases/365[3]Derivation[edit]Cashflowsinsufficient

HomeResourcesBlogUnderstandingtheCashConversionCycleTherearemanyfinancialmeasuresasmallbusinessownerneedstokeepaneyeontorunaprofitablebusiness.Whileyou’reprobablyontopofmetricssuchascashflowandsalesprojections,youmaynotbeasdiligentinmonitoringyourcashconversioncycle.Here’sacloserlookatwhatthecashconversioncycleis,howtocalculateit,andwhyitmatterstoyouandtoanypotentialfinancingsourcesyoumayapproach.Whatisacompany’scashconversioncycle?Sometimescalledthe netoperatingcycle or cashcycleorcash-to-cashcycletime,thecashconversioncycle(CCC)measureshowlongittakesyourbusinesstoconvertcashintoinventory,thenintosales,andfinallybackintocashagain.Youcalculatethecashconversioncyclebyfiguringouthowlongittakesyoutosellinventory,howlongittakesyoutocollectyouraccountsreceivable,andhowsoonyoucanpayyouraccountspayable.Thethreecomponentsofthecashconversioncycleare: DaysInventoryOutstanding(DIO).Thisistheaveragetimetoconvertinventoryintofinishedgoodsandthensellthem.YoucancalculateDIObytakingyouraverageinventory,dividingbythecostofgoodssold,andthenmultiplyingby365. DaysSalesOutstanding(DSO).Thisistheaveragenumberofdaysyouraccountsreceivabletakestobecollected.YoucancalculateDSObytakingyouraccountsreceivable,dividingbynetcreditsales,andthenmultiplyingby365.DaysPayableOutstanding(DPO).Thisistheaveragelengthoftimeittakesyourbusinesstopurchasefromvendorsandthenpay(accountspayable)them.YouarriveatDPObytakingtheendingaccountspayableanddividingby(costofgoodssold÷365).Thecashconversioncyclecanbeexpressedasaformula:CCC=DaysInventoryOutstanding(DIO)+DaysSalesOutstanding(DSO)–DaysPayableOutstanding(DPO)What’sagoodcashconversioncycle?Agoodcashconversioncycleisashortone.IfyourCCCisalowor(betteryet)anegativenumber,thatmeansyourworkingcapitalisnottiedupforlong,andyourbusinesshasgreaterliquidity.ManyonlineretailershaveloworevennegativeCCCsbecausetheydrop-shipinsteadofmaintaininginventory,getpaidrightawaywhencustomersbuyproductsanddonothavetopayfortheinventoryuntilcustomershavealreadypaidthem.IfyourCCCisaposi

AccountingToolsCPECoursesCPECoursesCPELogInHowtoTakeaCourseGroupDiscountsStateCPERequirementsBooksBooksListedbyTitleArticlesArticlesTopicsIndexSiteArchivePodcastAccountingBestPracticesPodcastIndexPodcastSummaryDictionaryFAQsAboutAboutContactEnvironmentalCommitmentHomeAccountingToolsCPECourses/CPECoursesCPELogInHowtoTakeaCourseGroupDiscountsStateCPERequirementsBooks/BooksListedbyTitleArticles/ArticlesTopicsIndexSiteArchivePodcast/AccountingBestPracticesPodcastIndexPodcastSummaryDictionary/FAQs/About/AboutContactEnvironmentalCommitmentHome/AccountingToolsAccountingCPECourses&BooksArticlesAccountingToolsCPECourses/CPECoursesCPELogInHowtoTakeaCourseGroupDiscountsStateCPERequirementsBooks/BooksListedbyTitleArticles/ArticlesTopicsIndexSiteArchivePodcast/AccountingBestPracticesPodcastIndexPodcastSummaryDictionary/FAQs/About/AboutContactEnvironmentalCommitmentHome/WhatistheCashtoCashCycle?Thecashtocashcycleisthetimeperiodbetweenwhenabusinesspayscashtoitssuppliersforinventoryandreceivescashfromitscustomers.Theconceptisusedtodeterminetheamountofcashneededtofundongoingoperations,andisakeyfactorinestimatingfinancingrequirements.Thecashtocashcalculationis:Daysinventoryonhand+Dayssalesoutstanding-Dayspayablesoutstanding=Cashtocashdays ExampleoftheCashtoCashCycleTheinventoryheldbyabusinessaveragesbeingonhandfor40days,anditscustomersusuallypaywithin50days.Offsettingthesefiguresisanaveragepayablesperiodof30days.Thisresultsinthefollowingcashtocashduration:40Daysofinventory+50Dayssalesoutstanding-30Dayspayablesoutstanding=60Cashtocashdays HowtheCashtoCashCycleisUsedThisoutcomestatesthatabusinessmustsupportitsexpendituresforaperiodof60days.Examinationofthecomponentsofthiscalculationmightleadmanagementtotakeseveraloffsettingactions,suchasshrinkingtheamountofon-handinventory,tighteningcredittocustomersorrequiringpaymentinadvance,andnegotiatinglongerpaymentstermswithsuppliers.Thecalculationisespeciallyusefulunderthefollowingcircumstances:Forecasting.Whenthereareindicationsthatpaymentorrec

TheCashCycleGuide2021SmartCashFlowStrategiesforYourBusiness.Howlongcanyouwaitforcustomerpaymentsuntilyourcompanystartsfeelingcash-strapped?Youbuyinventory,storeit,sellit,payyoursuppliersandthenwait…andwait…andwaittocollectonyourinvoices.Wishyourcustomerswouldpayontime?Wishyouhadafastercashcycle?Everybusinesswantsthatprocesstobeasfastaspossible. Thelongerittakes,themorecapital(oraccesstocapital)youneedtorunyourbusiness.Either you supplythatmoneyoryou’reforcedto borrowit fromsomeoneelse.Andthat’sgoingtocostyou…bigtime.Fortunately,thereareotheroptionsyoumightnotbeawareofthatcancometotherescue.Theycanspeedupyourcustomerinvoicepayments,saveyoumoneyinthelongrunandhelpgrowyourbusinessfasterthanever.TableofContentsSection1:WhytheCashCyclemattersSection2:WhydoesCashFlowmatter?Section3:TheMagicFormulaSection4:HowdoIshortenmyCCC?Section5:FinancialSolutionstoimproveCashFlowFinancialSolution1:TurncustomerinvoicesintocashFinancialSolution2:Leverageyourinventory,equipmentandrealestateFinancialSolution3:Keepsuppliershappy,butthecashstillinyourpocketFinancialSolution4:AquickwaytotakeadvantageofsupplierdiscountsSection#6:WecanpartnerwithyouSECTION1:WHYTHECASHCYCLEMATTERSIfyoubuyandsellinventoryonaccount,thenyou’llneedtoknowhowlongittakestoturnthatinventoryintocash.That’sexactlywhatthecashconversioncyclewilltellyou.It’syourkeytomakingsureyou’reontopofyourcompany’scashflow.WhatistheCashCycle?Thecashconversioncycle(CCC)–or“cashcycle”forshort–followsyouthroughthesupply,salesandpaymentjourney.Gettingpaidandputtingcashbackintothecompanyispriorityone.You’relikelyusedtothisprocess:AcquireinventoryfromasupplierStorethatinventorySellittoacustomeronaccount&invoicethem30,60or90daysPayyoursuppliersCollectonyourinvoicesTheCCCwillgiveyouanindicationofyourcashliquidityposition—anditcanpointyourattentiontowhatishelpingorhurtingyourcashflow.ThethreevariablesDIO(DaysInventoryOutstanding),DPO(DaysPayableOutstanding)andDSO(DaysSalesOutstanding)canallimpactyourworkingcapital.Andyoucantakecontrolofthemtoim

Cash-to-CashCycleTimeWhatisCash-to-CashCycleTime?TheCash-to-Cashcycleisthetimebetweenwhenabusinesspaysitssuppliersandwhenthebusinessreceivespaymentfromitscustomers,usuallyexpressedindays.KeepingactivetabsonyourCash-to-CashCycleTimewillaidyouinmonitoringyourfinancesascashflowsinandoutofyourbusiness.Alternatenames:CashConversionCycleHowtocalculateCash-to-CashCycleTimeƒ(DaysInventoryOutstanding)+(DaysSalesOutstanding)-(DaysPayablesOutstanding)ExampleIttakesawidgetmanufactureranaverageof60daystosellitsinventory,andthenhavingsoldtheirwidgets,takesthemanadditional30daystocollectcash.Ingeneralthemanufacturerpaysitssuppliersin75days.Cash-to-CashCycleTime=60DaysInventoryOutstanding+30DaysSalesOutstanding-75DaysPayablesOutstanding=15days.Note:Calculationsforthecomponents:DIO=AverageInventory/COGSX365(ifvaluesareannual)DSO=AverageAccountsReceivable/RevenuePerDayDPO=AverageAccountsPayable/COGSPerDayMoreaboutthismetricThisKPIisfinanciallyimportantinyoureffortstosetexpectationsbetweenavendorandcarrier,establishingacadenceofregular,predictablepayments.Inanasset-drivenindustrywithproductsmovingthroughyourcompanyquickly,keepingtrackofcashflowsisafinancialmakeorbreakforyourbusiness.Asidefromfinances,cash-to-cashcyclescanindicatechangesinthehealthofyoursupplychain.Lowercycletimescan symbolizeamoreprofitable,leanbusiness.Additionally,themetriccanbeasignofhowefficientlyyou’reusingyourassetsandresourcestodeliverreliably.Ideally,youshouldshootforlowcash-to-cashcycletimes.However,yourtargetnumbershouldresultfromabalancedconsiderationofsupplierandcustomerneeds.Cycletimesthataretoolowmayleaveyouwithinsufficientinventoryorwithlatepaymentstosuppliers.Yourtargetmetricshouldreflectyouraimtomeettheneedsofallpartiesinvolved.MonitoringCash-to-CashCycleTimewillbenefitbothyourassetmanagementperformanceandfinancialtrackingabilities.TrackthismetricCreateacustommetricinPowerMetrics,afree,self-serveanalyticstool,totrackCash-to-CashCycleTimeandrelatedmetricsthatmattertoyoumost.TrackyourmetricsfreeCompareI

BlogCONTACTUSAccessSFCOLABSigninSELFSTUDYABOUTOVERVIEWOURTEAMCONSULTINGENGAGEMENTSCONSULTINGOVERVIEWONLINECONSULTINGRESTRUCTURINGSERVICESOUTSOURCEDACCOUNTINGSERVICESMERGERS&ACQUISITIONSFINANCIAL&OPERATIONALREPORTINGACCOUNTINGDEPARTMENTEFFICIENCIESCFOTOOLS&COURSESOVERVIEWSCFOLABSELFSTUDYQUICKROWSFLASHREPORTTOOLPROJECTIONSTOOLSTRATEGICPRICINGMODELCASHFLOWTUNE-UPTOOLEXITSTRATEGYCHECKLISTFLUXANALYSISTOOLDSOCASHCRUNCHERSALESGENIESWOTANALYSISSURVEYUNDERSTANDINGBUSINESSVALUATIONWORKSHOPSFINANCIALLEADERSHIPWORKSHOP&FAQTHEARTOFTHECFO:VIRTUALFINANCIALLEADERSHIPWORKSHOPOPERATIONS–P&LLEADERSHIPWORKSHOPSERVICESOVERVIEWSHORTLYSTACCOUNTING&FINANCIALSTAFFINGRETAINEDSEARCHCOACHINGTESTIMONIALSWIKICFOMenuABOUTOVERVIEWOURTEAMCONSULTINGENGAGEMENTSCONSULTINGOVERVIEWONLINECONSULTINGRESTRUCTURINGSERVICESOUTSOURCEDACCOUNTINGSERVICESMERGERS&ACQUISITIONSFINANCIAL&OPERATIONALREPORTINGACCOUNTINGDEPARTMENTEFFICIENCIESCFOTOOLS&COURSESOVERVIEWSCFOLABSELFSTUDYQUICKROWSFLASHREPORTTOOLPROJECTIONSTOOLSTRATEGICPRICINGMODELCASHFLOWTUNE-UPTOOLEXITSTRATEGYCHECKLISTFLUXANALYSISTOOLDSOCASHCRUNCHERSALESGENIESWOTANALYSISSURVEYUNDERSTANDINGBUSINESSVALUATIONWORKSHOPSFINANCIALLEADERSHIPWORKSHOP&FAQTHEARTOFTHECFO:VIRTUALFINANCIALLEADERSHIPWORKSHOPOPERATIONS–P&LLEADERSHIPWORKSHOPSERVICESOVERVIEWSHORTLYSTACCOUNTING&FINANCIALSTAFFINGRETAINEDSEARCHCOACHINGTESTIMONIALSWIKICFO(832)710-3105Jul23BackToHomeCashCycleSeeAlso:DaysSalesOutstanding(DSO)DaysPayablesOutstanding(DPO)DailyCashFlowForecast13WeekCashFlowReportHowtoCreateDynamicCashFlowProjectionsDaysInventoryOutstanding(DIO)CashCycleDefinitionThecashcycledefinitionisthetimeittakesacompanytoturnrawmaterialsintocash.Itisalsoacommonconceptinanybusinesswhichprocessesmaterials.Alsoknownasthecashconversioncycle,itreferstothetimebetweenpurchasingtherawmaterialsusedtomakeaproductandcollectingthemoneyfromsellingtheproduct.Italsofunctionswellasameasureofliquidity:howeasilycanunfinishedproductbeturnedintocash.Findoutifreducingyourcashconversioncycleisworththeeffort!DownloadThe

LinkedInwithBackgroundYourPrivacyRightsInvestopediaandourthird-partypartnersusecookiesandprocesspersonaldatalikeuniqueidentifiersbasedonyourconsenttostoreand/oraccessinformationonadevice,displaypersonalizedadsandforcontentmeasurement,audienceinsight,andproductdevelopment.TochangeorwithdrawyourconsentchoicesforInvestopedia.com,includingyourrighttoobjectwherelegitimateinterestisused,clickbelow.Atanytime,youcanupdateyoursettingsthroughthe"EUPrivacy"linkatthebottomofanypage.Thesechoiceswillbesignaledgloballytoourpartnersandwillnotaffectbrowsingdata.ListofPartners(vendors)Weandourpartnersprocessdatato:Activelyscandevicecharacteristicsforidentification.Useprecisegeolocationdata.Storeand/oraccessinformationonadevice.Selectpersonalisedcontent.Createapersonalisedcontentprofile.Measureadperformance.Selectbasicads.Createapersonalisedadsprofile.Selectpersonalisedads.Applymarketresearchtogenerateaudienceinsights.Measurecontentperformance.Developandimproveproducts.ListofPartners(vendors)IAcceptShowPurposesCorporateFinance&AccountingGuidetoAccountingFinancialAnalysisCorporateFinanceFinancialStatementsFinancialRatiosAccountingDebtMergers&AcquisitionsCorporateInsuranceSeeAllCorporateFinance&AccountingFinancialStatementsWhatIstheCashConversionCycle(CCC)?Thecashconversioncycle(CCC)isametricthatexpressesthetime(measuredindays)ittakesforacompanytoconvertitsinvestmentsininventoryandotherresourcesintocashflowsfromsales.AlsocalledtheNetOperatingCycleorsimplyCashCycle,CCCattemptstomeasurehowlongeachnetinputdollaristiedupintheproductionandsalesprocessbeforeitgetsconvertedintocashreceived.Thismetrictakesintoaccounthowmuchtimethecompanyneedstosellitsinventory,howmuchtimeittakestocollectreceivables,andhowmuchtimeithastopayitsbills.CCC isoneofseveralquantitativemeasuresthathelpevaluatetheefficiencyofacompany'soperationsandmanagement.AtrendofdecreasingorsteadyCCCvaluesovermultipleperiodsisagoodsignwhilerisingonesshouldleadtomoreinvestigationandanalysisbasedonotherfactors.OneshouldbearinmindthatCC