The cash conversion cycle counts the days cash is tied up in trade, and each day has a financing cost
Back to the Trade Finance Guide
Ossiano Guides · Cost and working capital
Days to collect, plus days in stock, minus days to pay suppliers: that is how long a business funds its own trade. Trade finance can shorten each part.
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01 · The formula
Three day counts add up to one number
The (CCC) counts how many days a business waits to get its cash back from trade. It starts when the business pays for stock and ends when its customer pays. The Association for Financial Professionals (AFP) calls it the net time funds are tied up in operating . Working capital is the money locked in day-to-day trading.
The cycle has three parts. Each part is a count of days.
- (DSO): how long customers take to pay.
- (DIO): how long goods sit in stock before they are sold.
- (DPO): how long the business takes to pay its own suppliers.
This guide uses the standard formulas, as the Association of Corporate Treasurers (ACT) sets them out in The Treasurer, October 2014. Both the ACT and the AFP are professional bodies for treasury and finance staff.
CCC = DSO + DIO - DPO.
DSO = average accounts receivable / sales x 365.
DIO = average inventory / cost of goods sold x 365.
DPO = average accounts payable / cost of goods sold x 365.
Accounts receivable is money customers still owe. Accounts payable is money the business still owes suppliers. is what the goods that were sold cost to make or buy. The AFP gives the same formula for the cycle.
Figure 1 · Try it
Your cash conversion cycle and what it costs
Enter your days, or your statement lines, then your revenue and funding rate. Compare your cycle with the reference markers.
Start from
From statements (US dollars; used when From statements is chosen)
Enter days (used when Enter days is chosen)
Cash conversion cycle
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Cash tied up in the cycle
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Annual financing cost
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Formula in words: CCC equals DSO plus DIO minus DPO. DSO equals average receivables over revenue times 365. DIO and DPO use average inventory and average payables over cost of goods sold times 365. Cash tied up equals revenue over 365 times CCC. Financing cost equals cash tied up times the funding rate.
Our Research Desk used the Association of Corporate Treasurers definitions: DSO, DIO and DPO on a 365-day year, CCC = DSO + DIO - DPO. The funding rate is for illustration and is not Ossiano pricing.
This calculator explains the concept only. Company definitions vary: some filers add contract assets or net advance payments, and results depend on the balances you enter.
02 · The cost
Each day in the cycle holds one day of sales in working capital
Every day in the cycle locks up one day of sales. So the cash tied up equals yearly revenue divided by 365, times the number of days in the cycle. That cash has to come from somewhere, and it has a cost. The cost equals the cash tied up times the funding rate. Both are standard formulas, used here on made-up numbers.
Take a company with yearly revenue of USD 12,000,000 and cost of goods sold of 9,000,000. On average it is owed 1,800,000 by customers, holds 1,500,000 of stock and owes 900,000 to suppliers. Its DSO is 54.75 days, its DIO 60.83 days and its DPO 36.50 days. So its cycle is 79.08 days. That locks up USD 2,600,000. At a 6.00% funding rate, it costs USD 156,000 a year, in our Research Desk's worked example.
Change one balance and the cycle moves. Say the company owes suppliers 1,350,000 instead, with nothing else changed. Its DPO rises to 54.75 days and the cycle falls to 60.83 days. That frees USD 600,000 of cash. The sums show how big each part is. They are not advice on supplier terms.
03 · Company disclosures
Listed companies report their cycle, and each one defines it its own way
Some companies publish their cycle in their results. Each one picks its own definition, so check it before you compare.
Plexus Corp, an electronics manufacturer, reported a yearly-rate cash cycle of 62 days at July 4, 2026. It was 64 days at April 4, 2026 and 69 days at June 28, 2025. Plexus adds two extra parts. It counts days in contract assets, which is work done but not yet billed. It also subtracts days in advance payments, which is cash customers paid up front. At July 4, 2026 the parts were 56 days of receivables, 13 of contract assets and 116 of inventory, less 76 days of payables and 47 of advance payments.
Trane Technologies reported DSO of 60.8 days and DPO of 66.3 days at June 30, 2026, in Table 8 of its second-quarter release. It shows inventory as , 6.3, instead of days. Turns count how often stock is sold and replaced in a year.
Figure 2 · Interactive
How two manufacturers report their cycle
Tap a company to see each component and the date it covers.
Sources: Plexus Corp, Q3 fiscal 2026 earnings release (Form 8-K Exhibit 99.1), July 29, 2026; Trane Technologies plc, Q2 2026 earnings release (Form 8-K Exhibit 99.1), Table 8, July 30, 2026. Plexus shows payable and advance payment days in brackets because they are subtracted.
04 · The long trend
The typical cycle halved between 1975 and 2016, as stock fell and supplier terms grew
The AFP studied a large sample of listed companies. The median cycle fell from 101.66 days in 1975 to 49.98 days in 2016, the AFP reported on January 9, 2018. The median is the middle company in the sample. Median DIO fell from 88.07 to 50.40 days. Median DPO rose from 31.39 to 49.15 days. Both changes made the cycle shorter.
Figure 3 · Interactive
Median working capital days, 1975 and 2016
Tap a bar to see the median days for that year. Inventory and payables moved in opposite directions.
Source: Association for Financial Professionals, Cash conversion cycles are sharply shrinking, January 9, 2018. Medians for a large sample of public firms.
05 · Where trade finance acts
Receivables, inventory and payables finance each work on one part of the cycle
Each part of the cycle has a matching kind of . That is finance built around a company's trade with its customers and suppliers.
Days to collect (DSO). A seller on terms ships first and waits to be paid. With , it can sell the invoice and get cash now. In international factoring the exporter is paid up front by the factor, at a discount to the invoice, FCI explains. works the same way.
Days in stock (DIO). releases cash against goods held in stock. Providers advance only part of the stock's value, to keep a margin of protection, says the Global Supply Chain Finance Forum (GSCFF).
Days to pay (DPO). is set up by the buyer. The supplier can choose to take the discounted value of its invoice before the due date, the GSCFF Standard Definitions explain. Procter & Gamble reported USD 5,790,000,000 owed under at June 30, 2025, in its SEC filing data. A buyer can also offer to pay a supplier early, in return for a discount. This is called .
Our guides to receivables finance, inventory finance and payables finance cover each one in detail.
06 · Sector benchmarks
US Census balance sheets let our Research Desk work out cycles by sector
The US Census Bureau publishes a Quarterly Financial Report on US companies. It covers manufacturing, mining, wholesale trade, retail trade, information, and professional and technical services. The latest edition covers the second quarter of 2026. It was issued on September 8, 2026, with balance sheet tables by industry and company size.
The report has no separate line for cost of goods sold. So a sector cycle built from it has to use sales for all three parts. This gives a slightly different answer. On the same made-up company as section 02, the sales-based cycle is 73.00 days, against 79.08 days on the standard formula. Keep that in mind when you read sector figures.
07 · Ossiano view
The cycle is a funding choice, measured in days
OBSERVATION 01
Payables did much of the work
Median DPO rose from 31.39 days in 1975 to 49.15 days in 2016. Over the same years, median inventory days fell from 88.07 to 50.40. The cycle got shorter from both ends.
OBSERVATION 02
Read the definition before the number
Plexus subtracts 47 days of advance payments in its 62-day cycle. Trane shows inventory as turns, not days. To compare two companies, first match how each one counts.
OBSERVATION 03
Supplier finance is now on the page
P&G reported USD 5,790,000,000 of supplier finance program obligations at June 30, 2025. ASU 2022-04 requires buyers to disclose these programs each year. Readers can now see how much of a company's DPO rests on a program.
Summary
DSO plus DIO minus DPO is the number of days a business funds its own trade
The cash conversion cycle counts the days cash is tied up in trade. It equals days sales outstanding plus days inventory outstanding minus days payable outstanding. DSO divides average receivables by sales, times 365. DIO and DPO divide average inventory and average payables by cost of goods sold, times 365.
Every day in the cycle locks up one day of sales, and that cash has a cost. In the AFP's study, the median cycle fell from 101.66 days in 1975 to 49.98 days in 2016.
Related guides: how trade finance is priced, working capital and trade finance, seasonal trade and working capital, payables finance, receivables finance and inventory finance. Instrument cards: payables finance, factoring, invoice discounting, inventory finance, dynamic discounting and open account. Every marked term is defined in our Trade Finance Glossary. From our Research Desk: the market read on factories and households.
For questions on how these shifts affect existing or planned trade finance exposures, contact the Ossiano Research Desk.
Sources
- Association of Corporate Treasurers, The cash conversion cycle (The Treasurer, Treasury essentials), October 2014. Supports: the CCC, DSO, DIO and DPO formulas (page 46), used in the calculator and worked example.
- Association for Financial Professionals, Cash conversion cycles are sharply shrinking. Here is why, January 9, 2018. Supports: CCC definition; median CCC of 101.66 days (1975) and 49.98 days (2016); median DIO and DPO for 1975 and 2016.
- Plexus Corp via SEC EDGAR, Fiscal 2026 Q3 earnings release, Form 8-K Exhibit 99.1, July 29, 2026. Supports: annualized cash cycle of 62, 64 and 69 days; cash cycle definition and components at July 4, 2026.
- Trane Technologies plc via SEC EDGAR, Q2 2026 earnings release (8-K Ex. 99.1), Table 8 Balance Sheet Metrics, July 30, 2026. Supports: days sales outstanding, days payable outstanding and inventory turns.
- FCI, International Factoring, undated. Supports: the exporter receives payment up front by way of a discount against the invoice.
- Global Supply Chain Finance Forum (ICC, BAFT, EBA, FCI, ITFA), Standard Definitions: Loan or Advance against Inventory, 2016. Supports: providers advance a percentage of inventory value to establish a margin of protection.
- Global Supply Chain Finance Forum, Standard Definitions for Techniques of Supply Chain Finance, 2016. Supports: under payables finance, the seller may receive the discounted value of receivables before the due date.
- Procter & Gamble Co via SEC EDGAR, SEC XBRL companyconcept, SupplierFinanceProgramObligation, August 4, 2025. Supports: supplier finance program obligations of USD 5,790,000,000 at June 30, 2025 (fiscal 2025 Form 10-K).
- Financial Accounting Standards Board, Accounting Standards Update No. 2022-04, September 2022. Supports: the buyer discloses the key terms of its supplier finance programs in each annual reporting period.
- US Census Bureau, Quarterly Financial Report, Second Quarter 2026, September 8, 2026. Supports: latest quarter and release date; industry coverage; balance sheet tables by industry and asset size.
- Ossiano Research Desk, worked example (6.2 cash conversion cycle), October 1, 2026. Supports: every calculated figure on this page, from illustrative inputs.
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