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The Cash Conversion Cycle (CCC) measures how many days a company's cash is tied up in operations — from paying for inventory or inputs to collecting revenue from customers.
The CCC formula
CCC = DIO + DSO − DPO
Where: - DIO (Days Inventory Outstanding) = Average Inventory ÷ COGS × 365 - DSO (Days Sales Outstanding) = Average AR ÷ Revenue × 365 - DPO (Days Payable Outstanding) = Average AP ÷ COGS × 365
Example calculation
A business with: - Average inventory: $500k - Annual COGS: $3M - Average AR: $400k - Annual revenue: $5M - Average AP: $200k
- DIO = $500k ÷ $3M × 365 = 60.8 days
- DSO = $400k ÷ $5M × 365 = 29.2 days
- DPO = $200k ÷ $3M × 365 = 24.3 days
- CCC = 60.8 + 29.2 − 24.3 = 65.7 days
The company has $65.7 days of cash tied up in working capital on average.
Negative CCC: the holy grail
Some businesses — particularly SaaS (customers pay upfront) and retail giants (sell before paying suppliers) — achieve negative CCC. That means they collect cash before they need to pay their suppliers.
Amazon famously operated with a negative CCC for years, essentially using supplier credit as free working capital to fund growth.
CCC for SaaS businesses
Pure SaaS businesses typically have: - DIO = 0 (no physical inventory) - DSO = depends on payment terms (0 for monthly subscriptions, 30–60 for invoiced enterprise) - DPO = depends on supplier payment terms (usually 30–60 days)
SaaS with monthly card billing and standard payables often has CCC near 0 or negative.
How to improve CCC
Reduce DIO: Faster inventory turns through better demand forecasting, reduced safety stock, or just-in-time procurement.
Reduce DSO: Offer early payment discounts, automate collections, shorten payment terms for new customers, implement automatic billing.
Increase DPO: Negotiate longer payment terms with suppliers (60–90 days vs 30 days). Large companies do this systematically.
Frequently asked questions
What does this calculator do? Calculate Days Inventory Outstanding, Days Sales Outstanding, Days Payable Outstanding, and combine them into the Cash Conversion Cycle.