You need to enable JavaScript to run this app.
By Travis Yule — CEO & Founder, Full Send Funding
The cash conversion cycle is a capital requirement, not a ratio: a day of DSO is worth annual revenue ÷ 365, or $13,700 at $5 million of revenue.
In one sentence: The cash conversion cycle is not an analyst’s ratio but an operator’s capital requirement: each of its three components has a dollar value per day fixed by revenue or cost of sales, and each lever that shortens it has a specific price in margin, supplier relationships, or nothing but process.
The cash conversion cycle is the number of days between the moment a dollar leaves the business to pay for work and the moment a dollar comes back from the customer who bought it, net of the days your own suppliers let you wait. It is written as three components — days inventory outstanding plus days sales outstanding minus days payables outstanding — and the arithmetic that follows from it is short. The capital a business must hold to keep operating is what sits in inventory and receivables less what sits in payables, and that sum is fixed by the cycle, not by profit. In the four businesses worked below it runs from eleven days negative, for a restaurant its distributors finance, to sixty days for a staffing agency, and it ties up anything from nothing at all to $832,000.
The usual framing gets the audience wrong. The cycle is taught as a ratio for analysts comparing public companies, which is why it appears to one decimal place in annual reports and is ignored by the people it describes best. For an operator it is not a ratio. It is a capital requirement with three dials on it; each dial has a dollar value per day set by revenue or cost of sales; and each dial costs something specific to turn — margin, a supplier relationship, or nothing but process. This guide derives the three components from first principles, works the cycle through a construction subcontractor, a restaurant, a carrier and a staffing agency with named numbers, and prices every lever.
One thing it does not do is hand you a benchmark. There is no public dataset of receivable, inventory and payable days for firms of the size we fund. The section on benchmarks says why, and what to use instead, because a number borrowed from a company a hundred times your size is worse than no number.
Every business that sells anything runs the same sequence, and the cycle is a measurement of the gaps inside it.
Two clocks run through that sequence. The first runs from step one to step four and measures how long the business waits for its own money. The second runs from the day a supplier delivers to the day you pay them, and measures how long the supplier waits for theirs. The cycle is the first clock less the second, because every day a supplier waits is a day you did not have to fund.
That subtraction is the whole reason a restaurant and a staffing agency with similar revenue have opposite problems. The restaurant is paid at the till and pays its distributor next week; its second clock is longer than its first, and its suppliers are financing it. The staffing agency's largest cost is payroll, which has no terms at all — the second clock barely runs — while its clients pay in eight weeks. Same sequence, same formula, and one of them needs the better part of a million dollars to stand still.
Each component is a balance divided by a daily rate, and it is worth seeing why, because the derivation tells you which rate to use and what the answer means.
Take collection. Suppose the business invoices $10,000 every day and every invoice is paid on day 65. On any given morning the invoices outstanding are the last 65 days' worth, which is 65 × $10,000 = $650,000. The receivable balance is the daily billing rate multiplied by the days each invoice waits. Turn that around and you have the measurement: days outstanding = balance ÷ daily rate. Nothing else is being calculated; the formula is a rearrangement of what a balance is.
DSO = receivables ÷ (revenue ÷ days in the period)
The rate is revenue, because the receivable was booked at the selling price. Three practical points decide whether the number you get means anything.
The period should be long enough to smooth the lumps and short enough to be current. A trailing twelve months on a 365-day basis is the default; a single quarter multiplied out (balance ÷ (quarterly revenue ÷ 91)) is more current and more volatile. A seasonal business measured at the end of its peak will show a high DSO simply because the last quarter's billing was large relative to the year — use the quarter's own revenue for the quarter's own balance.
The balance should include everything the customer owes you that you have already booked. For a contractor that means retainage, which is earned, approved and unpaid and is therefore a receivable with a very long DSO of its own; the retainage problem is largely a DSO problem wearing a contract clause. For a restaurant it means the card settlements in transit, which is two days of sales and nothing else.
And the aggregate hides the account doing the damage. A business with an overall DSO of 45 days may have every customer paying on day 30 and one large customer paying on day 90. The average is true and useless; per-customer DSO is the number that changes behaviour.
DIO = inventory ÷ (cost of sales ÷ days in the period)
The rate is cost of sales, because inventory is carried at cost, not at what it will sell for. Dividing inventory by revenue understates the days by exactly the gross margin.
For a product business inventory is what it sounds like. For a service or contracting business it is work in progress that has not been invoiced — the crew hours and material in a slab poured on the 3rd and billed on the 30th, or a week of temporary payroll paid on Friday and invoiced when the client's period closes. That is inventory in every economic sense: cost has left the business and no customer has yet been asked for it. Businesses that report zero inventory because they sell no goods routinely carry ten or twenty days of it under another name, and the WIP schedule is where it shows.
DPO = payables ÷ (cost of sales ÷ days in the period)
The rate is cost of sales again, on the assumption that what a business buys in a year is close to what it sells in a year. A business building inventory or running it down will be off by that amount; use purchases if you track them.
The balance is trade payables and accrued payroll — what the business owes for inputs it has already received. It is not the balance on a line of credit or an advance, which are financing rather than operating items. DPO is the one component that works in the business's favour, and it is the one most people overstate, because they quote the terms on the invoice rather than the day the money actually leaves.
Cash conversion cycle = DIO + DSO − DPO
The result is in days, and it is a diagnostic: it tells you which of the three components dominates and whether the cycle is lengthening. It is not a quantity you can multiply by a single daily number to get dollars, because the three components sit on two different bases. DSO is measured against revenue and DIO and DPO against cost of sales, so a day of DSO is worth more than a day of DIO by the gross margin. The estimate that the shorter guide to working capital uses — daily operating outflow multiplied by the cycle — is a fair approximation for a quick answer. The exact figure is simpler than that, and it is the subject of the next section.
The capital the cycle ties up is the operating working capital: receivables + inventory − payables. Three balances from the balance sheet, no days involved. The cycle in days is the same fact expressed as time; the operating working capital is the same fact expressed as money the business has to have and cannot spend.
What the days version adds is the value of a single day, which is the number every lever is priced in.
Removing a single day from collection returns one day of revenue to the business, permanently — at $5 million of annual revenue that is $13,700, and it is not re-earned next month.
Annual revenue ÷ 365, rounded to the nearest $10. A day of DIO or DPO is worth annual cost of sales ÷ 365 instead, which is smaller by the gross margin.
A day of DSO is worth annual revenue ÷ 365. At $5 million of annual revenue that is $13,700, and the important property is that it is returned once and stays returned. Cutting collection from 45 days to 44 does not produce $13,700 a year; it produces $13,700 now, which the business keeps for as long as the improvement holds. Fifteen days at that revenue is $205,500 — the size of a working capital facility, released by a process change.
A day of DIO or DPO is worth annual cost of sales ÷ 365, which is smaller by the gross margin. At $5 million of revenue and 70% cost of sales, a day of inventory is $9,590 and a day of supplier terms is the same. That asymmetry is the first thing the cycle tells an operator about where to push: for most businesses on terms, collection is the largest component and the most valuable per day.
The formulas are only useful applied, so here they are applied to four businesses we see constantly, with every figure stated so that every result can be checked.
Illustrative businesses with stated figures, chosen so that every daily rate divides cleanly on a 365-day year. Receivables include retainage for the contractor and card settlements in transit for the restaurant; inventory includes unbilled work in progress for the contractor and one week of unbilled payroll for the agency; payables are trade payables and accrued payroll only.
Computed from the inputs table on a 365-day year: revenue per day = annual revenue ÷ 365; cost of sales per day = annual cost of sales ÷ 365; DIO = inventory ÷ cost of sales per day; DSO = receivables ÷ revenue per day; DPO = payables ÷ cost of sales per day; cycle = DIO + DSO − DPO; operating working capital = inventory + receivables − payables. A negative cycle means suppliers finance the operation.
The cycle is the first two bars less the third. The restaurant’s payables bar is taller than its inventory and receivables bars together, which is what a negative cycle looks like; the staffing agency has almost no third bar at all.
The DIO, DSO and DPO columns of the results table, computed from the inputs table on a 365-day year: DIO = inventory ÷ (annual cost of sales ÷ 365), DSO = receivables ÷ (annual revenue ÷ 365), DPO = payables ÷ (annual cost of sales ÷ 365).
Ridgeline Concrete is a flatwork and foundation subcontractor billing $3,650,000 a year, or $10,000 a day, at 80% cost of sales. It carries $160,000 of material and unbilled work — twenty days of cost — because pours are billed on the monthly application, not the day the truck leaves. Its receivables are $650,000, and they are large because they include retainage on every open job; that is 65 days of revenue. It pays its ready-mix and rebar suppliers in thirty days, which on $8,000 a day of cost is $240,000 of payables. The cycle is 20 + 65 − 30 = 55 days, and the operating working capital is $160,000 + $650,000 − $240,000 = $570,000. Ridgeline needs $570,000 in the business, permanently, to do $3.65 million of work — and at a 5% net margin it makes $182,500 a year. The capital requirement is three years of profit. That is the arithmetic behind the illiquid, profitable contractor, and it is why we structure construction financing around the draw schedule rather than the calendar.
Carriage House Grill does $1,825,000 a year, or $5,000 a day, at a 34% cost of food and beverage — $1,700 a day. It holds a week of stock, $11,900. Its receivables are the last two days of card sales waiting to settle, $10,000. It pays its broadline distributor and its beverage suppliers on an average of twenty days, which is $34,000 of payables. The cycle is 7 + 2 − 20 = −11 days: the restaurant collects eleven days before it pays, on average, and its operating working capital is −$12,100. Its suppliers are lending it $12,100 to operate. The restaurant's problems are real, but they are not this one, and restaurant financing that addresses a cash gap is addressing margin, a slow season or an equipment failure rather than a cycle.
Halvorsen Freight runs eight trucks at $2,190,000 a year, $6,000 a day, with fuel, driver pay and maintenance at 80% of revenue — $4,800 a day. Fuel in the tanks is the only inventory, one day's worth. Its brokers pay in 42 days on average, so receivables are $252,000, and its costs settle fast: the fuel card weekly, drivers weekly, maintenance in a month, an average of ten days or $48,000. The cycle is 1 + 42 − 10 = 33 days, and the operating working capital is $208,800 — $26,100 per truck, which is the sense in which every tractor is a permanent capital commitment. Add two trucks at the same terms and the requirement rises by $52,200 before either has been paid for a single load.
Meridian Staffing places light-industrial labour at $5,110,000 a year, $14,000 a day, with payroll and employer burden at $12,000 a day. Its inventory is a week of payroll it has paid and not yet billed, $84,000 — seven days. Its clients pay in 56 days on average, which is $784,000 of receivables. Its payables are three days of accrued payroll, $36,000, because payroll has no terms. The cycle is 7 + 56 − 3 = 60 days and the operating working capital is $832,000. The staffing article sizes the same requirement by a shorter route — weekly payroll including burden multiplied by weeks of lag — which on Meridian's numbers is $84,000 × 9 weeks = $756,000. The $76,000 between the two is the margin: the receivable is booked at the billing rate, $14,000 a day, while the payroll rule counts it at cost, $12,000, and that $2,000 a day over 56 days, less the $36,000 of accrued payroll, is exactly $76,000.
Read across the four and the pattern is the one the formula predicts. The two businesses that pay their largest cost before they bill it and collect on their customers' terms — the contractor and the agency — need capital in the hundreds of thousands. The business that collects at the till needs none. The carrier sits between, and its requirement is set almost entirely by one component.
An operator's guide to the cycle ought to end this section with a table of typical DIO, DSO and DPO by industry, and we have not, because no honest one exists for businesses of this size.
The official quarterly source of receivable and inventory balances by industry is the Census Bureau's Quarterly Financial Report, and its frame excludes almost every business we fund: it surveys corporations in manufacturing, mining, wholesale trade, retail trade and selected service industries, and it samples manufacturing corporations from $5 million of assets and every other covered sector from $50 million.[5] Construction, transportation and food service are not sectors it covers at all, and a DSO computed from it describes companies that negotiate terms with their customers from strength, carry treasury functions, and are on the other side of the table from a subcontractor waiting on a draw. The IRS Statistics of Income program publishes annual corporate balance-sheet items by industrial sector and by size of total assets,[7] which is the closest thing to a small-firm frame that exists, and it publishes balances, not days: a receivable total pooled across every corporation filing in a sector says nothing about the terms any one of them collects on. Publishing either number as a benchmark for a $3 million contractor would be false precision.
The Federal Reserve's Small Business Credit Survey is the right frame — employer firms with fewer than 500 employees, nationwide — but it measures financing outcomes and financial challenges, not balance-sheet days.[1] It can tell you that 56% of firms that sought financing in the 2025 survey did so to meet operating expenses,[1] and that in the prior year's survey more than half of firms named paying operating expenses (56%) or uneven cash flow (51%) as a financial challenge.[6] It cannot tell you what their DSO was. The industry benchmarks that circulate online are vendor compilations of undisclosed samples, and we do not cite them.
Two things are written down, and they are worth having. Where the customer is the federal government, the clock is a rule: payment is due 30 days after receipt of a proper invoice unless the contract says otherwise, and an improper invoice must be returned within 7 days of receipt.[2] On federal construction contracts the progress-payment clock is 14 days after the billing office receives a proper payment request, and a prime must pay a first-tier subcontractor within 7 days of receiving its own payment.[3] Where a prime receives accelerated payment, it must pass accelerated payment to its small business subcontractors within 15 days, without fees.[4] Those are the only DSO figures in this guide that come from a source rather than an example, and government work is the one setting where the number on the invoice is close to the number in the bank.
For everyone else the instruction is the same: measure your own. Pull twelve months of invoices with the date issued and the date paid, and compute the days per customer. Most operators who do this find one account running two to three weeks longer than they believed, and that account is the benchmark that matters.
Operating working capital scales with volume, which is the mechanism behind a sentence everyone repeats and few explain — that growth consumes cash.
Every additional dollar of revenue carries its share of the cycle. If Ridgeline grows 30%, its receivables, inventory and payables all grow by roughly 30% at the same terms, and its operating working capital rises from $570,000 to $741,000. The additional $171,000 has to be in the business before the new work pays, out of a balance sheet sized for last year's volume.
The question of how much growth a business can fund from its own profit has a clean answer: the profit it retains in a year divided by its operating working capital. Ridgeline retains $182,500 on $570,000, so it can fund about 32% growth a year from earnings if every dollar of profit is left in the business and the terms do not move. Above that rate, growth must be funded from outside or slowed. The real ceiling is lower, because profit arrives across the year while the capital for a new job is needed on its first day, and because terms lengthen with volume more often than they shorten — a business that wins a larger customer usually wins a slower one.
The tell that a business has crossed the line is specific and easy to check on a bank statement: profit rising while the balance falls, quarter after quarter. It is not an accounting error and it is not theft. It is the cycle absorbing the growth, and it is the single most common way a healthy business arrives at our door in a hurry.
We do not compute your cash conversion cycle. We read three or more months of bank statements, and the cycle is visible in them the way weather is visible in a window.
A long cycle shows up as deposit shape. A business collecting on terms deposits in lumps — a draw on the 25th, a client's payment run on the 1st and the 15th — and its balance sags in between. A short-cycle business deposits every day and its balance moves in a narrow band. The first is not weaker than the second, but it is underwritten differently: the remittance has to clear the sag, not the average, and it is sized to the weakest normal stretch. The signals themselves — average daily balance, deposit consistency, negative days and existing debits — are set out in how underwriting works, and every one of them is the cycle showing up in the account.
A lengthening cycle shows up as negative days arriving where there were none. A business whose largest customer moved from 30 to 60 days will, three months later, show a balance that touches zero in the last week of each month. That is what we are looking at when we ask about a customer, and disclosing the change costs nothing while leaving it to be found costs a great deal.
The product should match the shape of the gap, and the cycle tells you which shape you have.
We fund $5,000 to $10 million against monthly revenue of $10,000 or more, from three months in business, with a decision within 24 business hours and funding within 24 hours of approval, on a soft credit pull only. We file no UCC-1 lien against the business and our agreements contain no confession of judgment, which matters here specifically: a receivables-based facility from anyone else needs those receivables unencumbered.
Every lever moves one component by some number of days, and every day has the dollar value derived above. That makes the levers comparable on two axes — how much cash each releases, and what it costs to pull — and the second axis is the one operators skip. The table prices each on Ridgeline's numbers.
Cash released = days moved × the stated daily basis, on Ridgeline’s figures from the inputs table. The days moved are the scenario chosen for each row, not a claim about what every business can achieve. The annualized cost of the early-payment discount is (2 ÷ 98) × (365 ÷ 20). Each release is a one-time return of capital that stays returned for as long as the improvement holds.
Invoice the day the work is billable. The delay between a pour and its invoice, or a period close and its bill, is internal. Nobody is refusing to pay; nobody has been asked. On $10,000 a day of revenue, moving a monthly billing habit to a weekly one takes roughly seven days off DSO and returns $70,000, once, for the cost of a process. It is the cheapest capital available to any business on terms and the most commonly left on the table.
Bill the whole thing. Change orders performed and not priced, accessorial charges earned and not invoiced, hours worked and not captured: these are receivables that were never created. They do not appear in DSO because they do not appear anywhere, which makes them worse than a slow payer — a slow payer at least owes you.
Measure per customer and act on the outlier. Half of the value of the exercise is discovering which account is the cycle. The conversation that follows — a call to the AP department, a request to be moved onto the weekly run, an ask to be paid by ACH instead of check — costs nothing and routinely takes ten days off one account.
Take deposits and front-load the schedule. A mobilization payment or a schedule of values weighted toward the early phases is a legitimate contract term, not a favour. Ten days of DSO on Ridgeline's revenue is $100,000. It costs a negotiation and, on jobs where the buyer resists, occasionally a point of price; on most jobs it costs nothing but asking.
An early-payment discount buys days with a percentage of the invoice, and the only way to know whether it is a good trade is to annualize it. The conversion is:
annualized cost = (discount ÷ (100 − discount)) × (365 ÷ days accelerated)
Offering 2/10 net 30 to a customer who currently pays on day 30 buys twenty days for 2% of the invoice. That is (2 ÷ 98) × (365 ÷ 20) = 37.2% a year, because the transaction repeats every time an invoice is paid. The same 2% for sixty days of acceleration is 12.4%. The price of a day falls as the number of days bought rises, which is why a discount is a reasonable tool against a 90-day payer and an expensive one against a 30-day payer.
A 2% discount for paying twenty days early costs 37.2% a year; the same discount for sixty days costs 12.4%. The price of a day falls as the number of days bought rises.
Annualized cost = (discount ÷ (100 − discount)) × (365 ÷ days accelerated), simple rather than compounded, for a 2% and a 1% discount at each number of days shown. The formula is the same one applied to freight quick pay elsewhere in this library.
The decision rule is the same as for quick pay in freight: a discount is worth offering when the cash is worth more than the annualized rate — when the alternative is a facility that costs more, or a missed payroll that costs everything — and it is expensive as a standing policy applied to every invoice regardless of need. Offer it to the accounts that matter, on the invoices that matter, and read the annualized figure before you print it on the invoice.
Factoring moves DSO close to zero — the receivable is advanced within a day or two of the invoice — for a fee on every invoice for as long as the facility runs, plus a third party in the customer relationship, since the factor collects. On Ridgeline it releases $600,000 at once, which is why contractors and carriers use it. The thing to understand is that it does not shorten the cycle; it sells the cycle to someone else, every month, at a price. That is a rational trade for a business whose requirement is permanent and whose free levers are exhausted, and a poor one for a business that has not yet invoiced on time.
Paying suppliers later is arithmetically the cleanest lever in the table. Fifteen days of DPO on $8,000 a day of cost releases $120,000, and nothing in the formula records what it costs. What it costs is outside the formula: the goodwill of a ready-mix supplier who now delivers to you last on a busy morning, the early-payment discount that supplier offered and you are no longer taking, and the credit hold that arrives on the day a job needs material and the account is past due. Suppliers price slow payers eventually, in service before they do it in dollars.
The version that works is negotiated, not taken. A business with a clean payment history asking a long-standing supplier for net 45 in writing is pulling a lever. A business paying net 30 invoices on day 45 without a conversation is borrowing from a lender who did not agree to lend, and who will notice.
Carrying less inventory is the same shape: six days of DIO on Ridgeline's cost of sales is $48,000, paid for in smaller, more frequent deliveries and in the risk of a crew standing idle because the rebar is not on site. For a distributor or a retailer this is the dominant lever and worth real engineering. For a contractor or a service business it is small, and the effort is better spent on collection.
Financing the residual is the last lever, and it is listed last deliberately. It releases nothing; it funds what remains. After the free levers have been pulled and the priced ones have been weighed, the operating working capital that is left is a real requirement, and it should be financed on a product whose term matches how long the requirement lasts — a line for a revolving gap, a lump sum for a step change — at a price you have read as an annualized figure, the way the APR and factor-rate conversion sets out. Capital applied to an unmeasured cycle finances avoidable delay at an avoidable price. Capital applied to a measured, compressed cycle is what working capital funding is for.
The cycle explains a great deal, and there are four situations where working on it is the wrong answer.
A structural loss. A business that spends more than it makes in a normal month does not have a cycle problem, and shortening the cycle produces a one-time release of cash that the loss then consumes. The tell is that the operating working capital is not growing — revenue is flat or falling — while the balance still declines. Cycle work buys a quarter; it does not fix the month. Borrowing is the wrong answer here too, and an honest funder will say so.
A negative-cycle business with a cash problem. The restaurant above has a −11-day cycle and its suppliers are financing it. When it runs short, the cause is margin, a slow season, a rent step-up or a walk-in cooler, and the remedy is seasonal structuring or equipment financing with the asset behind it — not a receivables lever it does not have.
A one-time event. A cycle is a steady-state measurement. A single large job, a tax payment, an insurance renewal or an equipment purchase is a lump, and treating it as a cycle length misdescribes it. Finance a lump as a lump, on a term that matches its payback.
A cycle that is already at its floor. Federal contractors paid in 30 days by rule, providers paid by insurers on a schedule they do not set, subcontractors whose retainage is fixed by the contract: some components are not negotiable, and effort spent negotiating them is effort not spent on the residual. When the cycle is genuinely fixed, the requirement is genuinely permanent, and the decision is only how to fund it well.
The cash conversion cycle is days inventory outstanding plus days sales outstanding minus days payables outstanding — the days between paying for work and being paid for it, net of the days suppliers extend. Each component is a balance over a daily rate: receivables over revenue per day, inventory and payables over cost of sales per day. The dollars it ties up are the operating working capital, receivables plus inventory minus payables, and a day of DSO is worth annual revenue ÷ 365, returned once and kept. On four businesses the same arithmetic gives 55 days and $570,000 for a concrete subcontractor, −11 days for a restaurant, 33 days and $208,800 for an eight-truck carrier, and 60 days and $832,000 for a staffing agency. There is no public benchmark for firms this size, and the federal payment clocks are the only sourced DSO figures in this guide; measure your own, per customer. The levers rank by cost: daily invoicing and deposits cost process, an early-payment discount costs 2% of the invoice and 37.2% a year on twenty days, stretching suppliers costs the relationship, and financing costs a fee and leaves the cycle where it was. Finance the residual, match the term to the requirement, and make sure it is a timing gap before you do.
If you want that residual sized against your own numbers, check what you would qualify for — a minute, soft credit pull only — or call 518-312-0382 and walk through the four figures with us.
The four worked businesses are constructed, not surveyed. Their revenue, cost of sales, inventory, receivable and payable figures were chosen so that every daily rate divides cleanly on a 365-day year, and every derived number — the three component days, the cycle, the operating working capital, the value of a day and the cost of each lever — is computed from those stated figures by the formulas given in the prose and the source notes. The site’s arithmetic audit recomputes each published value from the inputs table before publication. The scenario days in the lever table are chosen for illustration and are not a claim about what any particular business can achieve.
The article deliberately publishes no benchmark of receivable, inventory or payable days. The official quarterly source of those balances by industry, the Census Bureau’s Quarterly Financial Report, surveys corporations in manufacturing, mining, wholesale and retail trade and selected service industries, sampling manufacturing from $5 million of assets and the other sectors from $50 million[5] — a frame that excludes the firms this library is written for; the IRS Statistics of Income Corporation Source Book publishes annual balance-sheet items by industrial sector and size of total assets,[7] as tax-return aggregates of corporations only, and neither source publishes days; the Federal Reserve’s Small Business Credit Survey measures financing use and financial challenges rather than balance-sheet days. Where the prose states a payment clock — 30 days under the federal Prompt Payment rule, 14 days on federal construction progress payments, 7 days for a prime to pay a first-tier subcontractor, 15 days for accelerated payment to small business subcontractors — the figure is quoted from the regulation or clause cited. The survey figures quoted are from the 2026 and 2025 Reports on Employer Firms, nationwide convenience samples of firms with fewer than 500 employees, and are offered as scale rather than as evidence about any one industry.
Cash conversion cycle = DIO + DSO − DPO. DIO is inventory (including unbilled work) divided by cost of sales per day; DSO is receivables divided by revenue per day; DPO is payables divided by cost of sales per day, all measured on the same period. A subcontractor with $160,000 of inventory, $650,000 of receivables and $240,000 of payables on $3,650,000 of revenue and $2,920,000 of cost of sales has 20 + 65 − 30 = 55 days.
There is no public benchmark for small firms — the Census Bureau’s Quarterly Financial Report, the official quarterly source of receivable and inventory balances by industry, covers manufacturing, mining, trade and selected services only, from $5 million of assets in manufacturing and $50 million elsewhere, and the IRS’s annual corporate tables publish balances, not days. Shorter is better, negative is possible for a cash business, and the useful comparison is your own cycle this quarter against last, per customer.
Yes. A business that is paid at the till and pays its suppliers on terms collects before it pays, so DPO exceeds DIO plus DSO. The restaurant worked in this guide has 7 days of inventory, 2 days of card settlement and 20 days of distributor terms, a cycle of −11 days: its suppliers finance its operation. The corollary is that its cash problems are margin and seasonality, not the cycle.
Exactly the operating working capital: receivables plus inventory minus payables. Multiplying a daily outflow by the cycle in days gives an estimate of the same figure; the balances give it precisely. Ridgeline Concrete’s 55-day cycle ties up $570,000; Meridian Staffing’s 60-day cycle ties up $832,000, because its daily cost of sales is larger.
Price it as financing. Offering 2% for payment by day 10 on a 30-day invoice buys twenty days for 2% of the invoice, which is (2 ÷ 98) × (365 ÷ 20) = 37.2% a year. It is worth it when the alternative cost of that cash is higher or when the alternative is a missed payroll; it is expensive as a standing policy applied to every invoice.
Arithmetically yes — fifteen days of DPO on $8,000 a day of cost of sales releases $120,000. The cost is not in the formula: supplier goodwill, any early-payment discount the supplier offered, and the risk of a credit hold on the day a job needs material. Negotiate longer terms openly rather than paying late; the first is a lever and the second is a debt the supplier has not agreed to.
A revolving line of credit fits a gap that recurs and varies, sized to the peak of operating working capital plus a margin; ours run from $10,000 to $2 million. A lump-sum working capital advance fits a step change — a new account, a seasonal ramp — with the term matched to how long the added cycle takes to pay for itself, from four months to three years. Neither shortens the cycle; both fund it.
Travis Yule founded Full Send Funding in 2021 and leads it from Middle Grove, New York. He writes about working capital from the underwriting side of the table — what the numbers actually have to say before a business gets funded.