Cash Conversion Cycle
The cash conversion cycle (CCC) is the number of days between paying suppliers for inventory and collecting cash from customers for the sale of that inventory.
Why it matters for ecommerce brands
The cash conversion cycle shows how long each dollar spent on inventory is gone before it comes back as cash. A long cycle means growth needs outside funding, even when the business is profitable. For DTC brands, inventory days and supplier terms drive most of it, since card payments settle within days. For example, 90 days of inventory, 5 days to collect, and 30 days of supplier terms give a 65-day cycle. Moving to 60-day supplier terms would cut it to 35 days.
Formula and calculator
CCC = days inventory outstanding + days sales outstanding − days payables outstanding
Common questions
- How can a DTC brand shorten its cash conversion cycle?
- Hold fewer days of inventory, negotiate longer payment terms or smaller deposits with suppliers, and avoid slow-paying wholesale terms. Each day removed reduces the cash needed to fund growth.
- How do you calculate the cash conversion cycle?
- Add days inventory outstanding and days sales outstanding, then subtract days payables outstanding. 90 + 5 − 30 gives 65 days.
- Can the cash conversion cycle be negative?
- Yes. If you collect from customers before you pay suppliers, the cycle is below zero, as with some preorder or made-to-order models. Suppliers are then funding your inventory.