The cash conversion cycle (CCC) is a formula in management accounting that measures how efficiently a company's managers are managing its working capital. The CCC measures the length of time between a company's purchase of inventory and the receipts of cash from its accounts receivable. The CCC is used by management to see how long a company's cash remains tied up in its operations.

Cash Conversion Cycle=Days Inventory Outstanding+Days Sales OutstandingDays Payable Outstanding*where:Days Inventory Outstanding=Average number of days the company holds its inventory before selling itDays Sales Outstanding=Number of days of average sales the company currently has outstandingDays Payable Outstanding=Ratio indicating average number of days the company takes to pay its bills\begin{aligned} &\text{Cash Conversion Cycle} = \text{Days Inventory Outstanding} + \text{Days Sales Outstanding} - \text{Days Payable Outstanding*} \\ &\textbf{where:} \\ &\text{Days Inventory Outstanding} = \text{Average number of days the company holds its inventory before selling it} \\ &\text{Days Sales Outstanding} = \text{Number of days of average sales the company currently has outstanding} \\ &\text{Days Payable Outstanding} = \text{Ratio indicating average number of days the company takes to pay its bills} \\ \end{aligned}Cash Conversion Cycle=Days Inventory Outstanding+Days Sales OutstandingDays Payable Outstanding*where:Days Inventory Outstanding=Average number of days the company holds its inventory before selling itDays Sales Outstanding=Number of days of average sales the company currently has outstandingDays Payable Outstanding=Ratio indicating average number of days the company takes to pay its bills

When a company – or its management – takes an extended period of time to collect outstanding accounts receivable, has too much inventory on hand or pays its expenses too quickly, it lengthens the CCC. A longer CCC means it takes a longer time to generate cash, which can mean insolvency for small companies.

When a company collects outstanding payments quickly, correctly forecasts inventory needs or pays its bills slowly, it shortens the CCC. A shorter CCC means the company is healthier. Additional money can then be used to make additional purchases or pay down outstanding debt.

When a manager has to pay its suppliers quickly, it's known as a pull on liquidity, which is bad for the company. When a manager cannot collect payments quickly enough, it's known as a drag on liquidity, which is also bad for the company.