Cash Conversion Cycle & Working Capital

How many days your cash is tied up between paying suppliers and collecting from customers — and how much money that represents.

Your numbers

Annual revenue (credit + cash sales)

Annual credit sales (optional)

Sales made on invoice. Leave blank to use total revenue — cash sales then make collection look faster than it is.

Annual cost of goods sold / direct costs

Unpaid customer invoices (receivables)

Inventory value at cost

Unpaid supplier bills (payables)

Ideally only bills for goods and direct inputs. Payables that include rent, services and other overheads overstate DPO, because DPO is measured against cost of goods only.

Average balances (e.g. the average of month-end figures over the year) are usually more representative than a single date: a year-end balance can be unusually high or low because of seasonality, a big order or a payment run.

Enter annual revenue and cost of goods sold to calculate the day measures.

DSO

—

Average days to collect

DIO

—

Average days stock is held

DPO

—

Average days to pay suppliers

Cash conversion cycle

—

Cash in receivables

—

Cash in inventory

—

Indicative operating working capital

—

Receivables + inventory − payables. This is not your total cash requirement: it excludes payroll, rent, tax, loan repayments and a cash buffer.

Scenarios: what if you change the days?

Collect from customers faster by

days

Reduce excess inventory by

days

Negotiate longer supplier terms by

days

Estimated one-off cash released

Enter annual revenue and cost of goods sold to see scenario impacts.

Formulas & assumptions

DSO = Receivables ÷ Annual revenue × 365
DIO = Inventory ÷ Annual cost of goods sold × 365
DPO = Payables ÷ Annual cost of goods sold × 365
Cash conversion cycle = DIO + DSO − DPO
Cash released by reducing DSO by N days = N × Sales used for DSO ÷ 365 (DIO and DPO use cost of goods sold)
Uses a 365-day year and year-end (or average) balances. Seasonal businesses should use average balances.
DSO uses credit sales when entered; otherwise total revenue (including cash sales lowers DSO).
Scenario reductions are capped at current DSO and DIO.

What to check next

Compare these balances with your aged receivables and payables reports.
Look at receivables by customer — a few late payers often drive DSO.
Review inventory by product to find slow-moving stock.
Check supplier terms you actually achieve, not just the contract terms.

Inventory planner Cash buffer & stress test Cash flow vs profit

Want to understand this using your real business data?

SME Finance Helper can help you turn financial records into clearer reporting, cash-flow visibility, and actionable business insights.

Discuss Your Business Numbers

Results are estimates based only on the values entered and are not a substitute for reviewing your business's actual records or professional advice. Example data is illustrative. Nothing you enter is stored or sent anywhere.