How it works
Your money is tied up while customers have not paid and while goods sit in stock. Suppliers who give you time to pay finance part of that.
Working capital needed = daily sales × days to collect + daily cost × days in stock − daily cost × days to pay suppliers.
Cash conversion cycle = days to collect + days in stock − days to pay.
Example
A shop selling $100,000 a month with $60,000 of cost of goods, collecting in 30 days, holding stock for 45 days and paying suppliers in 28 days needs about $134,000 of working capital. Its cash conversion cycle is 47 days.
How to need less cash
- Collect faster: deposits, card payments, shorter terms.
- Hold less stock: buy more often, drop slow sellers.
- Negotiate longer terms with suppliers.
See how inventory decisions affect this with the economic order quantity calculator.
Frequently asked questions
What is a negative cash conversion cycle?
You collect from customers before you pay suppliers, so suppliers fund the business. Supermarkets often work like this.
Is working capital the same as current assets minus current liabilities?
That is the accounting definition. This calculator estimates the operating need from your days, which is more useful for planning cash.
Where do I find the days?
Days to collect = receivables ÷ sales × 30; days in stock = inventory ÷ monthly cost × 30; days to pay = payables ÷ monthly purchases × 30.
See also
Results are estimates for information only and are not financial, legal or medical advice. Rates, taxes and fees vary — confirm with a professional or your lender.