Cash conversion cycle = days inventory outstanding + days sales outstanding - days payables outstanding. The calculator on this page does not compute the cycle; it estimates a monthly payment on an amount you enter.
How to Calculate Cash Conversion Cycle in Days: Numbers a Retail Shop Can Pull From Its Books
Three numbers from the books turn into days. Days inventory outstanding is average inventory divided by the year’s cost of goods, times 365. Days sales outstanding is average receivables divided by the year’s revenue, times 365. Days payables outstanding is average payables divided by cost of goods, times 365. The cycle is the first two added, minus the third.
| Item | Figure |
|---|---|
| Average inventory | $84,000 |
| Cost of goods sold, one year | $420,000 |
| Average receivables | $6,000 |
| Revenue, one year | $640,000 |
| Average payables | $28,000 |
| Days inventory outstanding | 73.0 |
| Days sales outstanding | 3.4 |
| Days payables outstanding | 24.3 |
| Cash conversion cycle (days) | 52.1 |
Card sales settle within days, so the shop’s receivables are small and inventory drives its 52.1-day cycle. Longer supplier terms would shorten it directly: each added day of payables takes a day off the cycle.
Cash Conversion Cycle Calculation Example and the Contractor Figures Behind Equipment Repairs
A contractor’s cycle looks different. Materials pass through within days, but progress billing leaves receivables open for weeks, so days sales outstanding drives the cycle.
| Item | Figure |
|---|---|
| Average materials on hand | $9,000 |
| Direct job costs, one year | $510,000 |
| Average receivables | $96,000 |
| Revenue, one year | $720,000 |
| Average payables | $31,000 |
| Days inventory outstanding | 6.4 |
| Days sales outstanding | 48.7 |
| Days payables outstanding | 22.2 |
| Cash conversion cycle (days) | 32.9 |
Our arithmetic on those invented figures: at about $1,397.26 of direct costs a day, a 32.9-day cycle keeps roughly $45,970 of cash in motion. A $14,000 equipment repair landing in the middle of that cycle has to come out of cash that is already committed, which is where a credit line or working capital comes in.
Cash Conversion Cycle Inputs Clinic Owners Already Have
A clinic already has the inputs. Average supplies on hand and payables come from the balance sheet; cost of supplies and direct costs and revenue come from the profit and loss statement; receivables come from the insurer aging report.
| Item | Figure |
|---|---|
| Average supplies on hand | $12,000 |
| Supply and direct care costs, one year | $380,000 |
| Average receivables | $118,000 |
| Revenue, one year | $860,000 |
| Average payables | $15,000 |
| Days inventory outstanding | 11.5 |
| Days sales outstanding | 50.1 |
| Days payables outstanding | 14.4 |
| Cash conversion cycle (days) | 47.2 |
Here claims drive the result: 50.1 days of receivables against 11.5 days of supplies, for a cycle of 47.2 days.
Reading a Clinic's Cycle Result Before Insurance Claim Lags
A cycle of 47.2 days means the clinic in the example pays out about $1,041.10 a day in direct costs and waits that long to see it back, which ties up roughly $49,140 (our arithmetic on the invented figures). If insurer payments slow by 10 days, about $10,411 more is tied up.
To see what funding that gap could cost each month, enter an amount, a rate and a term in the calculator on this page. It returns an estimated monthly payment, the total interest and the total repaid; see working capital for how that kind of funding works.
| Input or result | Figure |
|---|---|
| Amount | $24,000 |
| Rate (annual %) | 11% |
| Term (months) | 12 |
| Estimated monthly payment | $2,121.16 |
| Total interest | $1,453.92 |
| Total repaid | $25,453.92 |
The calculator works only from the amount you type, not from the cycle itself. An owner who expects the slowdown to pass can test a smaller amount sized to the extra days alone, such as the $10,411 in the clinic example, instead of the full $49,140, and compare the two monthly figures. When one of them looks workable, the request form is a way to open a partner review.
By Cliffway Funding Group · Updated