← Business Metric: Financial (all topics)
Cash conversion cycle (DSO, DIO, DPO)
What it is
Days sales outstanding plus days inventory outstanding less days payables outstanding - the number of days between paying a supplier and collecting from a customer
A negative cycle means suppliers and customers fund the business rather than the balance sheet
Impact on industries
- Decomposes working capital into three levers management can act on separately - collections, inventory and supplier terms
- A negative cycle is a structural advantage, letting growth generate cash rather than consume it
- Lengthening receivable days often signal channel stuffing or customer stress well before they appear in profit
- Stretching payables improves the ratio while damaging supplier relationships, so the components matter more than the total