Cash Conversion Cycle (CCC)

The cash conversion cycle (CCC) measures how many days a company's cash is tied up in operations: the days it holds inventory (DIO), plus the days it waits to collect receivables (DSO), minus the days it takes to pay its own suppliers (DPO). A CCC of 60 means that from the moment the company pays for inputs, sixty days pass before the corresponding customer cash arrives, sixty days of operations that must be financed by working capital or debt.

Each component is a lever with an owner. Operations and supply chain own DIO; credit and AR own DSO; procurement and treasury own DPO. The CCC frames them as one system, which prevents locally rational but globally silly moves, such as procurement paying early to capture small discounts while the company borrows to fund receivables, or sales extending terms (raising DSO) to hit a quarter while treasury sweats the revolver. Some strong businesses run negative CCCs, collecting from customers before paying suppliers, effectively having their supply chain finance their growth.

For credit analysis of customers, the CCC and its trend are among the most information-dense reads in the financial statements. A lengthening cycle, inventory building, receivables slowing, while payables stretch, is the standard anatomy of a liquidity squeeze, and it often appears several quarters before covenant trouble or payment delinquency reaches suppliers. Comparing a customer's CCC to industry norms also reveals business-model facts (distributor versus manufacturer versus project contractor) that should shape how much trade credit exposure is sensible.