The cash conversion cycle (CCC) measures how many days it takes a company to receive cash from a customer from its initial cash outlay for inventory. For example, a typical retailer buys inventory on credit from its vendors. When the inventory is purchased, a payable is established, but cash isn’t actually paid for some time. The CCC is most effective with retail-type companies which have inventories. Consulting, software, insurance companies are example where the CCC isn’t useful. The cash cycle has three distinct parts. The first part represents the current inventory level, the second part represents current sales and the amount of time it takes to collect cash from sales on account and the third part represents current outstanding payables. The lower the cash cycle the better, so a negative cash cycle is very desirable.
One of the ways a company can reduce the time to collect cash from sales on account is through factoring