What is Cash Conversion Cycle (CCC)?
Nexa Consultancy | Startup & Finance Glossary
The Cash Conversion Cycle (CCC) is a metric that measures the time it takes for a company to convert its investments in inventory and other resources into cash flows from sales. A shorter CCC indicates better working capital management and liquidity.
For Startups: Startups, especially in the e-commerce and manufacturing sectors, need to manage their CCC carefully to avoid cash flow problems. A long CCC can tie up significant capital in inventory and receivables, hindering the company's ability to invest in growth.
For SaaS: SaaS companies generally have a negative CCC because they collect cash from customers upfront for subscriptions before providing the service over time. This is a significant advantage as it provides them with upfront cash to fund operations and growth.
Calculation: CCC = Days of Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) - Days Payable Outstanding (DPO).
Example: If a company takes 45 days to sell inventory, 30 days to collect receivables, and 40 days to pay its suppliers, its CCC is 35 days.