Cash Conversion Cycle

From Financial Literacy Wiki

Cash Conversion Cycle (CCC) expresses the length of time (usually in days) that a company uses to sell inventory, collect receivables and pay its accounts payable. In simple words, CCC measures the number of days a company's cash is tied up in the the production and sales process of its operations and the benefit it gets from payment terms from its suppliers or creditors.

The shorter this cycle, the more liquid the company's working capital position is. However, shortening the CCC creates its own risks: while a firm can achieve a negative CCC by collecting from customers before paying suppliers, a policy of strict collections and lax payments can results in issues with both customers and suppliers.