We’ve all heard the phrase “cash is king,” and in business—whether you’re running a scrappy startup or a large, established company—it’s absolutely true. But beyond just monitoring your cash balance, there’s a powerful KPI that can give you deeper insight into your business’s financial health: the Cash Conversion Cycle (CCC). I like to simplify it and just call it the cash cycle.
The cash cycle measures how long it takes for money to leave your business (typically when you pay vendors for inventory) and return in the form of customer payments. In short, it’s the time between spending cash and collecting cash.
The shorter that cycle, the better your cash flow—and the more flexible and resilient your business becomes.
Let’s walk through how this works in a typical inventory-based business.
When you buy products or raw materials, you often pay up front or on terms. Terms are ideal, giving you more breathing room. For example, if a vendor offers Net 60 or Net 90 terms (meaning you pay 60 or 90 days after receiving inventory), that extends your cash availability—especially helpful in tight-margin businesses.
Sales happen in different ways. If you're selling directly on Shopify or another eCommerce platform, you're likely getting paid immediately (minus credit card fees). But if you're selling to retailers or distributors, you're often on Net 30, Net 60, or Net 90 terms—meaning a much longer wait before that money hits your bank account.
This is where many businesses run into trouble. You’ve paid for your inventory, you’ve shipped it to the customer, but the cash hasn’t come in yet. If you have too much money tied up in unpaid invoices or unsold inventory, it can strangle your cash flow—even if your business is profitable on paper.
Here are a few tactical ways to shorten your cash cycle and free up more working capital:
Don’t overbuy, especially in uncertain economic times. Instead of stocking up for 6+ months, see if you can stagger your purchases and keep tighter control of inventory turnover. Aim to turn inventory within 2–4 months, so you're not sitting on idle product (and idle cash).
See if you can negotiate longer payment terms—even if it comes with a slight price increase. For instance, paying $0.50 more per unit in exchange for Net 90 terms could dramatically improve your cash position, especially if you can sell and collect cash within that same 90-day window.
On the receivables side, explore options like early payment discounts. Offering a small percentage off for payment within 10 days might be worth it if it helps you get cash in the door sooner.
Too often, businesses focus on top-line revenue and forget that cash flow is what keeps the lights on. A bloated inventory or extended receivables timeline can choke your ability to reinvest in growth, pay your team, or handle unforeseen expenses.
Instead of letting your cash sit in unsold inventory or aging invoices, aim for a tighter, more efficient cash cycle—one where the time between outflow and inflow is as short as possible.
Here’s my challenge to you:
This isn’t just an exercise for inventory-heavy businesses. Service-based companies also experience cash flow lags—especially when project delivery and client payments are months apart.
So regardless of your model, tightening your cash cycle is one of the smartest moves you can make.
• • •
Need help analyzing your business’s cash cycle or building better cash flow strategies? Let’s talk.
