Find out how many days your cash is tied up — and exactly where the drag is coming from.
If your P&L looks fine but your bank account always feels tight, the Cash Conversion Cycle explains why. It measures the number of days between paying for inventory and collecting the cash from the sale — and for physical product businesses, it's one of the most important numbers you're probably not tracking.
How long your stock sits before it sells. Every day inventory is on a shelf, your cash is frozen inside it. High DIO usually means overbuying, slow-moving SKUs, or demand forecasting that's off.
How long it takes to collect payment after a sale. DTC and Amazon are near-zero. Wholesale terms of Net 30–60 can add weeks to your cycle. This is your collection speed.
How long before you pay your suppliers. DPO is the lever you can often pull fastest. Longer supplier terms mean your suppliers are effectively floating your cash — and that's a good thing.
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This tells us how long your stock sits before it turns into a sale. Use averages if your inventory fluctuates — the more accurate your inputs, the more useful your result.
The average value of your inventory on hand during the period. Add your opening and closing inventory balances, then divide by two.
Your total COGS from your P&L for the period you're measuring (annual is most common).
Match this to the period your COGS and revenue figures cover.
How fast do you collect payment after a sale? For DTC and Amazon businesses this is usually short. Wholesale with Net 30–60 terms can add weeks to your cycle.
Average A/R balance during the period. If you're purely DTC or Amazon (paid within days), this may be close to zero.
Your gross revenue figure from your P&L for the same period as Step 1.
DPO is cash that your suppliers are effectively floating on your behalf. The higher your DPO, the more your suppliers are funding your cycle — and that's leverage worth understanding.
Average A/P balance owed to suppliers during the period.
Total amount purchased from suppliers during the period. If you don't have this, use your COGS plus the change in inventory value as a close estimate.
| Component | Days |
|---|---|
| Days Inventory Outstanding (DIO) Avg inventory ÷ daily COGS | — |
| Days Sales Outstanding (DSO) Avg receivables ÷ daily revenue | — |
| Days Payable Outstanding (DPO) Avg payables ÷ daily purchases | — |
| Cash Conversion Cycle (DIO + DSO − DPO) | — |
Based on your numbers, here are the highest-leverage moves for your business.
The CCC is the upstream diagnosis. Cash flow management is the real-time discipline. Cash flow forecasting is the downstream map. You need all three — and this tool gives you the first piece.
Want to go deeper? The Margins & Meltdowns newsletter covers cash flow mechanics for bootstrapped product founders every week.