Ask any small business owner what keeps them awake at night, and you’ll hear the same thing: cashflow.
Not sales. Not profit. Cash.
You can be selling more than ever and still feel broke if your cash takes too long to come back in. That’s where one number, your Cash Conversion Cycle, tells the real story.
It measures how long it takes your business to buy stock (or deliver a service), sell it, get paid, and then use that cash again.
In short: how many days your money is tied up before it’s free to work for you again.
What Is the Cash Conversion Cycle?
The Cash Conversion Cycle (CCC) shows how many days it takes to turn what you spend into cash in your account again.
Here’s the formula in plain English:
Or simply:
So if you:
Hold stock for 30 days,
Wait 45 days for customers to pay, and
Pay your suppliers after 40 days,
Your CCC is 35 days.
That means every pound you spend takes 35 days to come back. The shorter that number, the healthier your cashflow.
Why It Matters
Your CCC is more than an accounting curiosity, it’s a cash reality check.
A long cycle means your money is constantly tied up in stock or invoices, forcing you to lean on emergency overdrafts or card debt.
A short cycle means your cash is moving efficiently, you’re collecting quickly, holding minimal stock, and paying bills at the right time.
For most small businesses, managing CCC is the difference between borrowing to survive and borrowing responsibly for the purposes of growing on your own terms.
How to Calculate Yours (With Examples)
Let’s walk through two everyday examples:
Example 1: A newsagent
Buys £10,000 of stock each month, sells through in 20 days
Offers small trade customers 30-day terms
Pays suppliers in 15 days
So:
CCC = 20 (stock) + 30 (debtors) − 15 (creditors)
CCC = 35 days
That means the newsagent’s money is tied up for about a month before it turns back into cash.
Example 2: A small accountancy practice
Little to no stock
Invoices at month-end with 30-day payment terms
Waits 40 days on average to be paid
Pays staff and rent every 30 days
CCC = 0 (no stock) + 40 (debtors) − 30 (creditors)
CCC = 10 days
Even service businesses have a CCC, it’s all about how long their cash is “out the door” before coming back in.
How to Improve Your Cash Conversion Cycle
Shortening your CCC doesn’t just free cash, it strengthens your whole operation and helps you understand your business better. Here’s how to attack each part of the formula.
Improve Inventory Days: Don’t Let Stock Sit Idle
If your money’s sitting on a shelf, it’s not working for you.
Check your turnover rates:
How long does your average item sit before it sells?
Are you carrying slow-moving lines just because you always have?
Can you buy “little and often” rather than in bulk?
Sector example:
Cafés often tie up cash in over-stocking perishables. Reducing daily orders by 10% can free hundreds in working capital without affecting sales.
Improve Debtor Days: Get Paid Faster
This is the biggest lever for most SMEs.
Invoice immediately.
Don’t wait until Friday. The earlier you invoice, the earlier you start the payment clock.Offer easy payment options.
Direct debit, card links, or PayPal mean fewer excuses for late payers.Set reminders automatically.
Tools like Xero, QuickBooks, or GoCardless send polite chasers before invoices are overdue.Reward quick payers.
A small 2% discount for payment within 7 days can beat waiting 45.Use credit control finance smartly.
If you regularly wait on slow-paying business clients, invoice finance can bridge the gap safely, without selling equity or maxing cards.
Extend Creditor Days: Use Supplier Terms Wisely
Paying late damages trust, but paying too early hurts cashflow.
Negotiate realistic terms that match your sales cycle.
If you sell stock in 20 days, 30-day supplier terms are ideal.Ask for seasonal flexibility.
Some suppliers will give 45-day terms over Christmas or quiet months.Consolidate orders.
Fewer, larger orders can give you more leverage in negotiation. You can unlock larger ordering through supplier financing or stock funding lines, especially useful toold when you understand your CCC.Pay strategically.
If you get 30 days, pay on day 29, not day 5.
How to Track Your CCC Monthly
Even small businesses can monitor CCC with a simple spreadsheet or in-app dashboard.
| Metric | Formula | Target |
|---|---|---|
|
Investory Days |
(Average stock ÷ Cost of goods sold) × 365 |
As low as possible without stock-outs |
|
Debtor Days |
(Trade debtors ÷ Annual sales) × 365 |
Under 30 days |
|
Creditor Days |
(Trade creditors ÷ Purchases) × 365 |
30–45 days typical |
|
Cash Conversion Cycle |
Inventory + Debtor − Creditor Days |
Shorter = better |
Most cloud accounting tools can export this data automatically.
How to Track Your CCC Monthly
Every sector has different working cycles. Here’s a rough benchmark:
| Sector | Typical CCC | Why |
|---|---|---|
|
Retail (newsagents, convenience, cafés) |
20–45 days |
Fast stock turnover, short supplier terms |
|
Trades (construction, maintenance) |
45–75 days |
Long payment terms from contractors |
|
Professional services (accountants, consultants) |
10–40 days |
No stock, but slow-paying clients |
|
Manufacturing & wholesale |
60–120 days |
Stock-heavy and slower receivables |
|
Hospitality |
5–25 days |
Quick turnover, cash/instant payments |
Why Improving CCC Builds Financial Strength
1. Less reliance on emergency borrowing
Shortening your CCC means your cash returns faster, so you’re not leaning on overdrafts or short-term loans just to plug gaps. It reduces the need for emergency borrowing and puts you back in control of when and why you borrow. That turns finance into what it should be: a growth tool, used to seize opportunities, not survive mismanagement. When you borrow on purpose rather than in panic, you unlock better rates, stronger terms, and genuine headroom for expansion.
2. Better bargaining power
A strong cash position gives you options. Paying suppliers on time (or early) lets you ask for discounts, longer terms, or exclusive stock, and you’re far more attractive to lenders when you’re not constantly chasing cash.
3. More stable growth
Fast-moving cash builds resilience. You can reinvest profits steadily rather than relying on windfalls or debt to fund every next step. And if one big customer pays late, your flow still holds firm, no panic, no chain reaction.
Tools and Financing Options That Help
Sometimes you can’t fix the timing gaps fully, and in the real world you never can, especially if the market dictates terms. In that case, it’s about using the right tools safely.
Invoice Finance: Get up to 90% of your invoice value upfront, so cash isn’t stuck in 30- or 60-day waits. We can arrange funding for even a single invoice
VAT & Tax Loans: Spread HMRC payments to protect cashflow during seasonal dips.
Short-Term Working Capital Loans: Cover stock buys or big orders without eating into reserves.
These tools aren’t signs of weakness, they’re how well-run businesses stay liquid while everyone else scrambles.
Watch the Flow, Not Just the Figures
Profit looks good on paper. Cashflow keeps the doors open.
Your cash conversion cycle is the clearest snapshot of how your business actually moves. Once you track it, you can control it, shorten it, smooth it, and make every pound work harder.
So before the new year begins, take ten minutes to calculate your CCC.
If you don’t like what you see, fix one small thing: invoice faster, negotiate better, or reduce stock.
Those small changes add up to bigger stability, and that’s what separates busy businesses from profitable ones.
