Cash Velocity: How to Calculate and Shorten Your Cash Conversion Cycle by 45 Days

If you found value in our article EBITDA vs Cash Flow for Lending: Why CFADS Wins for Debt Decisions, this piece takes the next step. That discussion focused on how EBITDA can overlook the real flow of money through your business. Here, we look at how fast that money moves—your Cash Conversion Cycle (CCC)—and what you can do to shorten it.

The CCC reveals how long each dollar stays tied up in operations before returning as cash. Reducing that time directly strengthens your liquidity, improves flexibility, and lowers your reliance on external funding.

Key Points

• The Cash Conversion Cycle (CCC) shows how long cash is tied up in inventory, receivables, and payables.
• The formula: CCC = DIO + DSO – DPO.
• Every day reduced in the CCC frees up working capital and limits the need for outside financing.
• A company with a faster CCC can often outperform one with higher profit margins.
• Capital Source’s in-house CCC Impact Simulator helps you model real savings and improvements—our senior underwriters can show you how much time and cash your business can reclaim.

I. The Time-Value of Cash

Profit margins are important, but the pace of cash flow determines financial health. A company with a 10% margin and a 30-day CCC often stands on firmer ground than one with a 15% margin and a 120-day CCC. Faster cash turnover means more liquidity, less debt pressure, and stronger lending potential.

II. How to Calculate Your CCC

Formula: CCC = DIO + DSO – DPO

This formula exposes where your working capital is trapped and where you can make measurable improvements.

III. Finding and Fixing the Lost Days

• Reduce DIO: Improve forecasting, adopt just-in-time systems, and clear excess stock efficiently.
• Shorten DSO: Offer early-payment incentives, apply consistent credit policies, and automate collections.
• Extend DPO thoughtfully: Negotiate better terms with key suppliers and centralize payment management for predictability.

These actions free cash that can be reinvested for growth or used to strengthen your balance sheet.

IV. The CCC (Cash Conversion Cycle) Impact Simulator

Operational changes can create progress, but structured funding can lead to transformation.

At Capital Source, we developed the CCC Impact Simulator—an internal analytics tool that uses your company’s financial data to show how strategic financing can shorten your cash cycle.

Connect with Capital Source, and one of our senior underwriters will walk you through your results in real time. You’ll see exactly how many days can be saved and how much working capital can be released—turning your CCC from a constraint into a competitive advantage.

FAQ

Why focus on the CCC instead of profit margins?

Because profits don’t always translate into cash on hand—the CCC shows how quickly profits become usable capital.

What’s a good CCC target?

There’s no universal number. It depends on your industry, business model, and supplier relationships. The goal is to make your CCC shorter than your sector average.

Is extending payables risky for supplier relationships?

Not if handled responsibly. Strategic payment terms can benefit both sides when communicated clearly and managed consistently.

When should I consider using the CCC Impact Simulator?

If your inventory sits too long, receivables lag, or supplier payments feel rushed, it’s time. Our underwriters can run your numbers through the simulator and show how to speed up your cash cycle safely and sustainably.