What the Cash Conversion Cycle Counts and Who Funds the Days

The cash conversion cycle is the number of days between paying for inputs and collecting cash from customers: inventory days plus receivable days minus payable days. Shorter is better, but the sign matters less than who funds the days. HP Inc reports minus 38, and about half of its payables sit in supplier finance programs run with banks.

Every day in the cycle is lent by someone: the company itself, its customers, its suppliers or a bank standing behind one of them. The textbook formula records the days and leaves out the lender, so this guide covers both: how the number is computed, and how to tell from a 10-K who is carrying it.

The formula, its parts and who funds each part

Part	Annual formula	What it counts	Who funds these days
Days inventory outstanding (DIO)	Inventory ÷ cost of sales × 365	Days goods sit before they are sold	The company, from equity or debt
Days sales outstanding (DSO)	Receivables ÷ revenue × 365	Days customers take to pay	The company, or a factor if receivables are sold
Days payable outstanding (DPO), subtracted	Payables ÷ cost of sales × 365	Days the company takes to pay suppliers	Suppliers, or a bank behind a supplier finance program
Cash conversion cycle	DIO + DSO − DPO	Net days of operations the company carries itself	Whoever funds the parts
Not in the formula: prepayments	Unearned revenue ÷ revenue × 365	Days of revenue customers have paid in advance	Customers

Source: Richards and Laughlin (1980); definitions as used in HP’s and CDW’s 10-K filings. The last column and last row are CX Cash’s synthesis.

Cash conversion cycle = DIO + DSO − DPO

How do you calculate the cash conversion cycle?

Add days inventory outstanding to days sales outstanding and subtract days payable outstanding. Verlyn Richards and Eugene Laughlin set out the measure in Financial Management in 1980 as a liquidity tool. They warned that “Incorrect evaluation of the liquidity implications of a firm’s working capital needs may, in turn, subject creditors and investors to an unanticipated risk of default” (Richards & Laughlin, 1980).

Each part is a balance divided by a daily flow: receivables by revenue per day, inventory and payables by cost of sales per day. Two consequences follow. The cash tied up equals the days multiplied by the daily flow, so a company that grows 50% on the same cycle needs 50% more working capital. And the days do not add up cleanly: DSO counts days of revenue, while inventory and payable days count days of cost, so at a 50% gross margin a day of receivables holds twice the cash of a day of inventory or payables (our arithmetic). The ratio also assumes a steady business. A balance struck at a seasonal peak, divided by an average day’s flow, overstates the typical wait.

What is a good cash conversion cycle?

No single number is good; the answer depends on the business and, as much, on the method. The Hackett Group’s 2025 survey of the 1,000 largest US non-financial public companies put their average cycle at 37 days, a 4% improvement led by days payable, which rose to 59 (Hackett Group, 2025). Their receivable days worsened for a second year, as “customer bargaining power drove extended payment terms”. Hackett sells working-capital consulting and does not publish its method. The table below sets out six large US companies that publish their cycle, no two computing it alike, beside Costco and Amazon computed from their balance sheets.

Eight companies’ cycles, in days, as reported or as their balance sheets imply

Company (fiscal year end)	Business	DSO	DIO	DPO	Cycle	How the days are computed
HP Inc (Oct 2025)	PCs and printers	35	66	139	−38	Year-end balance ÷ 90-day average flow
Hewlett Packard Enterprise (Oct 2025)	Servers and networking	49	89	108	+30 (−12 a year earlier)	Year-end balance ÷ 90-day average flow
CDW (Dec 2025)	IT reseller	95	11	90	+16	Rolling three-month averages
TD SYNNEX (Nov 2025)	IT distributor	61	53	98	+16	Fourth-quarter balances and flows
Western Digital (Jun 2025)	Data storage	52	76	75	+53	Not stated beside the table
McCormick (Nov 2025)	Spices and flavours	n/d	n/d	n/d	+42	Annual averages, DPO denominator adjusted
Costco (Aug 2025)	Warehouse retail	4	28	30	+2	Our arithmetic: year-end balances, 365 days
Amazon (Dec 2025)	Retail and cloud	35	39	125	−51	Our arithmetic: year-end balances, 365 days

Source: 10-K filings of HP, HPE, CDW, TD SYNNEX, Western Digital, McCormick, Costco and Amazon; n/d: not disclosed. Costco and Amazon do not report the metric, so their rows are our arithmetic and depend on the balance-sheet date.

Method alone moves the result: HP divides each period-end balance by a 90-day average flow; on annual totals, the same balances give about minus 42 days rather than minus 38. CDW’s 95 days of receivables reflect accounting more than slow customers: it books part of its revenue net, which, in its own words, “results in an increase to both DSO and DPO”. Two cycles compare only when they are computed the same way.

Who funds a short or negative cash conversion cycle?

Customers, suppliers or banks, and the notes to a 10-K usually say which. HP sold $11.8B of receivables to third parties in fiscal 2025, equal to 21% of its revenue, and explains that year’s higher DSO in one line: “The increase in DSO was primarily due to lower factoring”. At year end, $8.9B was also outstanding under programs that let suppliers sell HP’s payment obligations to banks, which HP pays on the original due dates. HP includes that sum in accounts payable, where it makes up 49% of the line (our arithmetic).

HP states that “Participation by suppliers in these programs have no impact on the payment terms and amounts due from HP”. It also states that “HP and the participating financial institutions may terminate the agreement upon at least 30 days notice”. About 69 of its 139 payable days therefore correspond to money a bank has advanced, or stands ready to advance, to HP’s suppliers. That describes who carries the days, and implies no wrongdoing. Across the economy, one company’s payable days are another’s receivable days, so stretching suppliers moves days between companies more than it removes them.

Why can supplier-funded days disappear?

Because someone else decides how long they last. Hewlett Packard Enterprise’s cycle moved from minus 12 days to plus 30 in fiscal 2025, a 42-day swing, mostly because payable days fell from 170 to 108 on lower purchases and higher payments to outsourced manufacturers. Operating cash flow fell by $1.4B that year, mainly through working capital “largely resulting from timing of vendor payments” (HPE, 2025). Nobody withdrew credit from HPE; a change in its own purchases and payments was enough.

Carillion shows the extreme case. The British contractor, a founding participant in the government’s Supply Chain Finance Scheme, moved its standard supplier terms to 120 days; suppliers could sell their invoices at a discount to its bank and be paid after 45 days (House of Commons, 2018). Carillion reported turning more than 100% of its operating profit into operating cash. Moody’s and S&P argued that the early payment facility was borrowing. Reclassify it that way, the committees wrote, and of £501 million of operating profit over 2013 to 2016 “only £37 million was cash-backed, a conversion rate of 7%”.

Carillion went into liquidation in January 2018 with liabilities of nearly £7 billion. The parliamentary committees concluded that “It used its early payment facility for suppliers as a credit card, but did not account for it as borrowing”.

Standard setters have responded: FASB’s Accounting Standards Update 2022-04 requires buyers to disclose the key terms of supplier finance programs, the amount outstanding and, from fiscal years beginning after 15 December 2023, a rollforward (FASB, 2022). Investors it consulted had seen buyers “lengthening their payment terms with suppliers” while setting up the programs. The update changes disclosure only, so the obligations stay in payables, and in DPO. The risk lies in the supplier’s patience: if a program shrinks, suppliers who accepted long terms because a bank paid them early can ask for shorter ones.

How do Costco and Amazon keep their cycles short?

By selling goods before the supplier’s invoice falls due, on terms that are not stretched, and by collecting some cash in advance. Costco comes out at about plus 2 days on its fiscal 2025 year-end balances. Its 10-K makes a narrower, stronger claim: “We often sell inventory before we are required to pay for it, even while taking advantage of early payment discounts” (Costco, 2025). Inventory turns in about 28 days against about 30 days of payables, so suppliers fund the shelf without being stretched. Members also prepay a year’s fee, and the $2.9B of deferred membership fees is a float the formula does not count.

Amazon’s 10-K describes the same design: “We seek to turn inventory quickly and collect from consumers before our payments to vendors and sellers become due” (Amazon, 2026). Its textbook cycle is about minus 51 days, but its payable days also move with “the mix of sales by third-party sellers”, so treat that as an order of magnitude.

Does the cash conversion cycle work for SaaS companies?

Only with a correction, because the formula leaves out the main term: cash that customers pay in advance. Salesforce invoices in advance, in annual instalments, on terms that provide “that our customers pay us within 30 days of invoice”, and “There is a disproportionate weighting toward annual billings in the fourth quarter” (Salesforce, 2026). Its fiscal year ends on 31 January, just after that quarter. Year-end receivables of $14.3B against revenue of $41.5B give a DSO of 126 days, 4.2 times the 30-day terms in its own 10-K (our arithmetic).

The 126 days say more about the calendar than about collections: the balance sheet is struck at the seasonal peak, so the year-end DSO overstates the average wait. Meanwhile unearned revenue, billed ahead of service, stood at $24.3B, or 214 days of revenue, and exceeded receivables by $10.0B, a lower bound on the cash customers had already paid for service not yet delivered.

Young software companies probably collect less in advance. ChartMogul’s data, drawn from its own customers, show 28% of ARR on plans of 12 months or longer below $300K of ARR, rising to 41% at $15M to $30M (ChartMogul, 2023). Plan length is not the same as billing in advance, and one vendor’s customers are not the market. The figures suggest no more than that smaller companies have less prepaid cash to set against a long cycle.

How can a startup shorten its cash conversion cycle?

From the customer side first, because a day of receivables releases more cash than a day of payables and the terms are the company’s own to set. The table below removes 30 days from a hypothetical company’s cycle in three ways.

Three ways to take 30 days out of a hypothetical company’s cycle, $ thousands

Suppose a company selling hardware with software has $12.0M of annual revenue, a 50% gross margin, 90 days of inventory, 60 days of receivables and 30 days of payables. Its 120-day cycle ties up $2,959k: inventory of $1,479k plus receivables of $1,973k minus payables of $493k.

Lever	Change	Cash released	Who funds the days	What can reverse it
Pay suppliers later	DPO 30 → 60	493	Suppliers, or their bank	Higher prices, lost discounts, a withdrawn program
Hold less stock	DIO 90 → 60	493	The company’s own operations	Stock-outs and missed orders
Collect sooner: deposits, annual billing in advance	DSO 60 → 30	986	Customers	The discount offered for paying early

Hypothetical company. One day of receivables is $32.9k of revenue; one day of inventory or payables is $16.4k of cost. Dollar amounts follow from those daily figures.

The same 30 days release different sums. Collecting a month sooner releases $986k, funded by customers who agreed to it; stretching suppliers by a month releases half as much, funded by a party that can change its mind. If the company grows 50% on the same 120 days, it needs another $1,479k of working capital, a sum the 13-week cash flow model below can test week by week.

Paying suppliers early can also be the better investment. Mitchell Petersen and Raghuram Rajan note that a buyer on 2/10 net 30 terms that skips the 2% discount and pays on day 30 is effectively “borrowing over the next 20 days at an annual rate of 43.5 percent” (Petersen & Rajan, 1996). On the simple convention the rate works out to 37.2%, and compounded over 365 days to 44.6%. Few uses of a startup’s spare cash earn that much.

Is supplier credit free money?

No, although the price is often paid by someone other than the buyer. Wall Street Prep puts the opposite case plainly. In its account, Amazon financed its operations through delayed supplier payments, and “unlike traditional debt financing, this came with no interest” (Wall Street Prep). Part of the research points the same way. In Marc Deloof’s study of 1,009 large Belgian firms from 1992 to 1996, firms with fewer receivable and inventory days were more profitable. He reads this as room for managers to raise profitability (Deloof, 2003).

The payables side reads differently. Deloof’s abstract ends drily: “Less profitable firms wait longer to pay their bills”. The interest is also moved rather than removed. Justin Murfin and Kenneth Njoroge found that “slower payment terms by large retailers are associated with lower investment at the supplier level”, most sharply when bank credit is tight (Murfin & Njoroge, 2015). Petersen and Rajan describe medium-term borrowing against trade credit as “a form of financing of last resort”. Wall Street Prep is right that a shorter cycle frees cash. The days a supplier funds still carry a price, which surfaces in the supplier’s investment, the buyer’s purchase prices or the bank’s fee. The days customers fund cost the discount the company chooses to offer.

A short cycle lasts as long as its lender agrees

The cash conversion cycle measures how long a company’s money is tied up, and the daily flow turns those days into dollars, but the sign matters less than the funding. Days funded by customers who pay in advance last as long as the product is worth prepaying for; days funded by suppliers or their banks last as long as those lenders agree. The notes to a 10-K say which kind a company holds. At HP, about 69 of the 139 payable days rest on programs that HP or the banks can end on at least 30 days’ notice.

Sources

• Amazon.com, Inc. (2026). Form 10-K, fiscal year ended 31 December 2025.
• CDW Corporation (2026). Form 10-K, fiscal year ended 31 December 2025.
• ChartMogul (2023). SaaS Growth Report.
• Costco Wholesale Corporation (2025). Form 10-K, fiscal year ended 31 August 2025.
• Deloof, M. (2003). Does working capital management affect profitability of Belgian firms? Journal of Business Finance & Accounting 30(3–4), 573–588.
• Financial Accounting Standards Board (2022). Accounting Standards Update 2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50).
• Hackett Group (2025). 2025 U.S. Working Capital Survey (news release, 18 August 2025).
• Hewlett Packard Enterprise (2025). Form 10-K, fiscal year ended 31 October 2025.
• House of Commons BEIS and Work and Pensions Committees (2018). Carillion. HC 769.
• HP Inc. (2025). Form 10-K, fiscal year ended 31 October 2025.
• McCormick & Company (2026). Form 10-K, fiscal year ended 30 November 2025.
• Murfin, J. and Njoroge, K. (2015). The implicit costs of trade credit borrowing by large firms. Review of Financial Studies 28(1), 112–145.
• Petersen, M. A. and Rajan, R. G. (1996). Trade credit: theories and evidence. NBER Working Paper 5602; published in Review of Financial Studies 10(3), 661–691 (1997).
• Richards, V. D. and Laughlin, E. J. (1980). A cash conversion cycle approach to liquidity analysis. Financial Management 9(1).
• Salesforce, Inc. (2026). Form 10-K, fiscal year ended 31 January 2026.
• TD SYNNEX Corporation (2026). Form 10-K, fiscal year ended 30 November 2025.
• Wall Street Prep. Cash Conversion Cycle (web article).
• Western Digital Corporation (2025). Form 10-K, fiscal year ended 27 June 2025.

Company figures come from each company’s own 10-K. The findings of Deloof and of Murfin and Njoroge come from their published abstracts. Days, ratios and dollar amounts printed without a citation, the Costco and Amazon rows of the eight-company table among them, are computed from those filings on a 365-day year. The hardware-and-software company that takes 30 days out of its cycle is hypothetical.