Finance · Cash flow · Component
The conversion cycle
How long from paying for inputs to being paid for outputs — the measure that explains why growth consumes cash.
The deliverable
What it is
The cycle is receivable days plus inventory days minus payable days. Each component is separately manageable and they are usually managed by different people.
Shortening the cycle releases cash without earning any, which makes it the cheapest source of funding available to most organisations.
One level in
What it is made of
Each element is a constituent part of the component. Follow one to see the attributes it carries.
The receivable days
How long customers actually take to pay.
3 attributes: Days outstanding · Time to invoice · Tied up
LearnThe inventory days
How long stock or work in progress is held before it is sold.
3 attributes: Days held · Value held · Type
LearnThe payable days
How long the organisation takes to pay its own suppliers.
3 attributes: Days taken · Early payment discount · Supplier effect
Learn
Time to invoice is often a larger delay than time to pay, and it is the cheapest one to fix.
The other components in cash flow
The cash forecast
Money in and out by week, thirteen weeks ahead — long enough to see a problem and short enough to be accurate.
LearnThe runway
How long the organisation survives at current burn — a number someone should know without calculating it.
Learn