Definition
The cash conversion cycle (CCC) measures how long cash is tied up between paying out cash (to suppliers) and collecting cash (from customers). It's a working-capital lens on runway.
Formula
CCC = DSO + DIO - DPO (often DIO ~ 0 for SaaS)
How to use it
- Lower CCC means cash comes back faster (less runway risk).
- In SaaS, CCC is usually driven by collections (DSO) and vendor terms (DPO), not inventory.
- Use CCC trends to explain why cash can worsen even when revenue looks strong (growth can consume cash).
Common mistakes
- Treating bookings or recognized revenue as cash collected.
- Planning runway from P&L only (ignoring AR/AP movement).
Measured as
CCC = DSO + DIO - DPO (often DIO ~ 0 for SaaS)
Misused when
- Treating bookings or recognized revenue as cash collected.
- Planning runway from P&L only (ignoring AR/AP movement).
Operator takeaway
- Lower CCC means cash comes back faster (less runway risk).
- In SaaS, CCC is usually driven by collections (DSO) and vendor terms (DPO), not inventory.
- Use CCC trends to explain why cash can worsen even when revenue looks strong (growth can consume cash).
- Tie Cash Conversion Cycle (CCC) to the same balance-sheet date, scenario, and decision memo you are using elsewhere in the model.
- Document which claims, costs, or adjustments your team includes before comparing numbers across forecasts, covenants, or valuation work.
Next decision
- Read Cash conversion cycle: turn working capital into runway if the decision depends on interpretation, policy, or trade-offs beyond the raw formula.
- Decide whether Cash Conversion Cycle (CCC) belongs in cash planning, valuation, or debt monitoring so the number is used in the right model.
Where to use this on MetricKit
Guides
- Cash conversion cycle: turn working capital into runway: A practical guide to the cash conversion cycle (CCC): how AR/AP timing changes cash, how to reduce days outstanding, and why runway depends on working capital.
- Runway and burn: gross vs net burn, working capital, and cash levers: A practical guide to runway: compute net burn, understand why cash differs from profit, and how working capital and collections change runway.