Cash conversion cycle calculator: how long is your cash tied up?

How the calculator works

• Debtor days = money customers owe you ÷ (sales ÷ days in the period). How long customers take to pay.
• Stock days = stock at cost ÷ (cost of sales ÷ days). How long stock sits before it is sold.
• Creditor days = money you owe suppliers ÷ (cost of sales ÷ days). How long you take to pay for it.
• Cash conversion cycle = debtor days + stock days − creditor days.
• Cash tied up = owed to you + stock − owed to suppliers. It is the money the cycle keeps out of your bank right now.

A worked example

A building supplies wholesaler sold $1,095,000 over the last 12 months, with $730,000 of cost of sales. Its Balance Sheet shows $135,000 owed by customers, $120,000 of stock at cost and $70,000 owed to suppliers (aged totals with GST taken out). Made-up figures to show the arithmetic.

	Result
Daily sales: $1,095,000 ÷ 365	$3,000 a day
Daily cost of sales: $730,000 ÷ 365	$2,000 a day
Debtor days: $135,000 ÷ $3,000	45 days
Stock days: $120,000 ÷ $2,000	60 days
Creditor days: $70,000 ÷ $2,000	35 days
Cash conversion cycle: 45 + 60 − 35	70 days
Cash tied up: $135,000 + $120,000 − $70,000	$185,000

Each lever is worth a different amount, because a day of sales is bigger than a day of cost:

• Collecting 10 days faster frees $3,000 × 10 = $30,000.
• Holding 10 fewer days of stock frees $2,000 × 10 = $20,000.
• Paying suppliers 10 days later keeps $2,000 × 10 = $20,000 in the bank, if your terms allow it.

Getting customers from 45 to 35 days and stock from 60 to 50 days takes the cycle to 50 days and puts $50,000 in the bank without selling anything more. Press "Load the worked example" above to see it in the calculator.

Getting the figures from Xero

1. Sales and cost of sales: Accounting › Reports › Profit and Loss for the last 12 months. Use the cost of sales lines for stock and materials; if wages sit in cost of sales, leave them out, or stock and creditor days will read low.
2. Money owed to you and owed to suppliers: the totals of the Aged Receivables Summary and Aged Payables Summary as at today, divided by 1.1 (Australia), 1.15 (New Zealand) or 1.2 (UK standard rate) to take the tax out. How to read the aged reports explains both.
3. Stock: the inventory line on the Balance Sheet. If you do not track inventory in Xero, it only moves when your accountant posts a stocktake, so use your latest count at cost instead. How to calculate stock days covers why.

Which part to work on

• Debtor days well above your terms: invoice the day the work is done, turn on Xero invoice reminders, and chase the biggest overdue balances first. The debtor days calculator shows how late customers pay against your terms.
• Stock days above your reorder cycle plus delivery time: find the slow lines and stop reordering them before you cut anything that sells. The stock turnover calculator shows how many times a year your stock sells through, and how much cash a faster turnover would free.
• Creditor days well below your terms: you may be paying early. Pay on the due date, not when the bill arrives. How to calculate creditor days shows how to check. Paying later than agreed costs goodwill and sometimes discounts, so stop at your terms.

To see how the extra cash changes how long the business can run, use the cash runway calculator. To check whether current assets cover everything due this year, use the working capital calculator. If the business is profitable but the bank balance still falls, a longer cycle is often why: profit but no cash walks through it, and how to improve cash flow ranks the other levers.

Questions