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The Cash Conversion Cycle Explained
The cash conversion cycle (CCC) measures the number of days between paying for inputs and receiving cash from customers. A CCC of 45 days means the business funds 45 days of activity from its own balance sheet before cash returns. A CCC of 90 days on a rapidly growing turnover is a working capital crisis waiting to happen.
CCC = Debtor Days + Stock Days – Creditor Days. Each component can be calculated from management accounts and used to project forward working capital requirements as revenue changes.
Planner Layout
The planner runs monthly across a 12-month horizon. Each month shows projected revenue, cost of sales, and the three working capital balances derived from the days metrics applied to those values. The net working capital figure — current assets minus current liabilities in the trading cycle — is the primary output.
- Debtors: (Revenue / 365) × Debtor Days
- Stock: (COGS / 365) × Stock Days
- Creditors: (COGS / 365) × Creditor Days
- Net working capital: Debtors + Stock – Creditors
The month-on-month movement in net working capital is the cash absorbed or released by the trading cycle. Cumulative absorption over the forecast period is the working capital funding requirement.
Growth and Its Effect on Working Capital
A 20% revenue increase does not require 20% more cash if the CCC is managed. Improving debtor days from 45 to 35 on a £5m turnover releases approximately £137,000 of cash — the equivalent of a significant facility without the borrowing cost. The planner makes these levers visible and quantified.
Conversely, a business winning a large new contract that pays at 60 days when the supplier terms are net 30 will see its working capital requirement spike sharply. The planner shows this spike in advance, giving directors time to arrange invoice finance or negotiate better supplier terms before the cash shortfall arrives.
When to Use Working Capital Finance
If the planner shows a persistent and growing working capital deficit that cannot be resolved through cycle improvements alone, a revolving working capital facility or invoice finance line is typically the appropriate solution. These facilities are sized against the working capital balance rather than a fixed capital sum, so they flex as the business grows.
Present the planner output alongside recent management accounts when approaching a lender. The planner demonstrates that the funding need is structural and recurring — not a sign of financial difficulty — which is a meaningful distinction in commercial underwriting. Confirm assumptions with your accountant before any lender approach.
Frequently asked questions
How do we calculate debtor days from our management accounts?
Divide trade debtors by average daily sales (annual sales divided by 365, or monthly sales divided by 30). If debtor days are consistently higher than your stated credit terms, that is a collections process issue worth addressing before it affects your working capital facility availability.
Should work-in-progress be included in the stock line?
Yes, for businesses with a meaningful WIP balance — construction, manufacturing, professional services with long engagements. Calculate WIP days on the same basis as stock: WIP balance divided by daily COGS. Excluding WIP understates the true working capital requirement.
Funding for UK limited companies
Credicorp lends to your company, not to you personally — short-term working capital with no personal guarantee. See what your business could access.