Glossary · UK
What is Cash Conversion Cycle?
The number of days a business takes to turn money spent on stock into cash collected from customers, net of supplier credit.
Full Definition
The cash conversion cycle (CCC), also called the cash cycle, measures how long a business's cash is tied up in its day-to-day operating cycle before it comes back in the door. It is calculated as days inventory outstanding (roughly how long stock sits before being sold, linked to inventory turnover) plus debtor days (how long it takes customers to pay invoices), minus creditor days (how long the business itself takes to pay its own suppliers). A shorter cash conversion cycle is generally better, since it means less of the business's own cash is locked up funding stock and customer credit at any one time -- a business can even achieve a negative CCC (common in some retail and subscription models) if it collects cash from customers before it has to pay its suppliers, effectively funding growth using supplier and customer money rather than its own working capital. Businesses that are growing quickly but see their cash conversion cycle lengthening can run into cash flow problems even while reporting healthy profits on paper, which is why lenders and investors often watch the trend in CCC alongside profit margins, and why tightening stock control, chasing customer payments faster, or negotiating longer supplier payment terms are common ways to shorten it.