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CCC: cash conversion cycle, formula and example

CCC (Cash Conversion Cycle) shows how many days it takes a business to turn cash invested in inventory into cash receipts from customers, taking into account payment deferrals to suppliers. A lower CCC means less capital "tied up" and better OCF potential.

What the metric measures

How efficiently working capital is managed across purchasing, warehousing, and collections. It shows where exactly money gets "stuck": in inventory, receivables, or supplier payments.

Calculation

  • CCC = DIO + DSO − DPO
  • Use a monthly/quarterly/annual period with seasonal normalization
  • Calculate based on COGS (for DIO/DPO) and net revenue (for DSO), excluding VAT

Calculation example

Inventory sits for 60 days (DIO), customers pay in 25 days (DSO) and the company pays suppliers in 20 days (DPO). CCC = 60 + 25 − 20 = 65 days. Cutting DIO to 45 days frees cash equal to 15 days of cost of sales.

Data sources

ERP/1C (AR/AP, COGS, warehouse), WMS/MRP, CRM/billing, bank statements/payment calendar; customer/supplier master data, aging reports.

Interpretation

  • Lower CCC = lower DIO/DSO or higher DPO at a stable service level
  • Higher CCC = excess inventory, slow collections, or prepayments to suppliers
  • Weigh the trade-offs between liquidity and service level/supplier prices

Useful breakdowns

  • Categories/SKUs, customers/segments, suppliers/purchasing categories
  • Channels, regions, currencies
  • RM / WIP / FG; prepayment vs post-payment

Dashboard visualizations

  • CCC trend with targets
  • Bridge of DIO/DSO/DPO contributions
  • CCC map by division/channel/region
  • AR/AP aging, DIO heatmap
  • "What-if" simulator: ±X days of DIO/DSO/DPO → ΔOCF

How to set targets

Define a target CCC and targets for DIO/DSO/DPO, a policy on credit limits/payment deferrals, safety stock levels, SLAs for invoicing and approvals, and rules for factoring/dynamic discounting. Keep the rolling forecast up to date.

Common mistakes

  • Unequal periods/currencies without normalization
  • Using VAT or ending balances instead of averages
  • Mixing operating and CAPEX suppliers
  • Ignoring returns/credit notes and consignment
  • No seasonal adjustment

Questions for discussion

  • Which actions will reduce CCC by 5–10 days the fastest?
  • What is the effect of −5 days of CCC on OCF?
  • Where is the "bottleneck": inventory, invoicing, or payment approvals?

Questions and answers

What is the cash conversion cycle?

The number of days from paying a supplier to receiving cash from a customer — how long the company’s cash is tied up in working capital.

How do you calculate CCC?

CCC = DIO + DSO − DPO: days of inventory plus days of receivables minus days of payables.

How do you shorten the cash conversion cycle?

Reduce inventory (DIO), speed up customer payments (DSO) and negotiate longer supplier terms (DPO) within contracts.