Cash Conversion Cycle: 60 Days (Receive Payment After 30 Days, Pay Supplier in 7) = Burn

Understanding CCC#

CCC = Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) - Days Payable Outstanding (DPO). DIO: how long goods sit in inventory before sold. DSO: how long until customer pays. DPO: how long until you pay supplier. CCC = negative (good) or positive (bad, eats working capital).

Optimizing Each Component#

(1) DIO: reduce by faster inventory turnover (better forecasting, dropshipping, just-in-time). (2) DSO: reduce by faster payment collection (early discounts, stricter terms, automated reminders). (3) DPO: increase by negotiating longer payment terms with suppliers (30-60 days vs 7 days). Net: shorter CCC = less working capital needed.

Industry Variations#

Retail (Costco): negative CCC (sell first, pay later). Sells goods, collects in 1 day (cash), pays suppliers in 30 days. CCC = very short (cash flow positive). Restaurant: positive CCC (must fund inventory + receivables upfront). Manufacturer: longer CCC (inventory days high, receivables if B2B).

AskBiz CCC Optimization#

Calculates current CCC, suggests improvements. "Current CCC: 28 days, working capital SGD 28K. DIO 5 days (industry avg 3), DSO 30 days (industry avg 20), DPO 7 days (negotiate to 14). Improvement targets: DIO 3 (-2 days), DSO 20 (-10 days), DPO 14 (+7 days). New CCC: 9 days (77% reduction). Working capital freed: SGD 19K (freed from CCC optimization alone)."

• Restaurant: holds inventory 5 days (perishable goods), collects payment 30 days average (B2B catering), pays suppliers 7 days.
• CCC = 5 + 30 - 7 = 28 days.
• Working capital needed: 28 days × average daily COGS SGD 1K = SGD 28K.