cashflow
Cash Conversion Cycle (CCC)
Days from paying for inputs to collecting cash from sales. The full cash cycle of the business.
Definition
The Cash Conversion Cycle (CCC) measures how long it takes for a dollar of working capital to come back as cash: Days Inventory Outstanding (DIO, how long inventory sits) + Days Sales Outstanding (DSO, how long customers take to pay) - Days Payable Outstanding (DPO, how long you take to pay suppliers). Lower CCC = less working capital needed = more cash for growth. For service businesses without inventory, CCC simplifies to DSO - DPO. Best-in-class operators run negative CCC - they collect from customers before paying suppliers.
In your business
- →Track CCC quarterly - it's the diagnostic for working capital health
- →Reduce CCC by: collecting faster (lower DSO), paying later (higher DPO), holding less inventory (lower DIO)
- →Negative CCC is the gold standard - some businesses (Amazon, Dell) built empires on it