cash-conversion-cyclelisted

# Cash Conversion Cycle — Why Profitable Businesses Run Out of Cash ## Overview The cash conversion cycle (CCC) measures **how long cash is trapped between paying suppliers and collecting from customers**: CCC = DIO (days inventory) + DSO (days receivables) − DPO (days payables). A long CCC means growth *consumes* cash — the faster you grow, the tighter you get — which is why profitable SMBs go insolvent. Shortening the cycle frees cash without raising a dollar. ## The Process 1. **Measure the three components** — DIO (inventory held), DSO (time to collect), DPO (time you take to pay). 2. **Compute CCC** and see how many days of cash are locked in operations. *Gate: if CCC × daily burn exceeds your cash buffer, growth is a liquidity risk, not just an opportunity.* 3. **Shorten DSO** — invoice immediately, deposits/upfront, faster terms, autopay, chase overdue (pairs with ar-dso-discipline). 4. **Shorten DIO** — less/just-in-time inventory, drop-ship, faster turns. 5. **Lengthen DPO sensibly** — negotiate supplier terms without harming the relationship. 6. **Model growth against the cycle** — project the cash a growth plan will absorb *before* committing. *Gate: scaling with a long CCC and no cash cushion is how solvent firms fail.* ## When to Use - "Profitable but always cash-strapped" - Inventory- or receivables-heavy businesses - Planning a growth push that will absorb working capital ## Applying It Well - Upfront payment/deposits is the single biggest DSO fix for servi