Cash Conversion Cycle

What is Cash Conversion Cycle?

The cash conversion cycle (CCC) measures how many days it takes to convert investments in inventory and production back into cash from sales. It is calculated as days inventory outstanding plus days sales outstanding minus days payable outstanding.

In manufacturing, the cycle often runs 60 to 120 days. You pay for materials on day one, produce for 30 days, ship the product, and wait 60 or more days for customer payment. During this entire period, cash is locked in operations.

A shorter cycle means less cash tied up in the business. A longer cycle means more working capital is required to fund operations. The CCC is the metric that determines how much cash a manufacturer needs to operate at a given production volume. Read our cash conversion cycle guide. Reducing CCC by even a few days across high-volume lines can free more working capital than marginal cost cuts. Track CCC monthly and assign owners to each component: inventory, receivables, and payables.

Why it matters

Manufacturers who do not measure CCC underestimate their working capital needs. Growth in production volume linearly increases the cash locked in the conversion cycle.

Formula

CCC = Days Inventory Outstanding + Days Sales Outstanding - Days Payable Outstanding

Example

How RunwayCal helps

Common mistakes

• 1Ignoring CCC when planning production volume increases
• 2Measuring CCC annually instead of monthly
• 3Not separating CCC components to identify improvement opportunities