Cash Conversion Cycle

Cash Conversion Cycle (CCC) measures the days between paying for operating inputs and collecting cash from customers, calculated as DSO + DIO - DPO. It measures how long capital is tied up in operations. Lower (or negative) CCC is better; SaaS companies with annual upfront billing often have negative CCC, meaning cash arrives before the company even delivers the service.

The math:

CCC = DSO + DIO - DPO

Where:

• DSO ([Days Sales Outstanding]): days from invoice to collection.
• DIO (Days Inventory Outstanding): days from acquiring inventory to selling it. For SaaS, this is typically 0.
• DPO (Days Payable Outstanding): days from receiving vendor invoice to paying.

Example - traditional business (e.g., retail):

• DSO: 45 days...