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Working capital and the cash conversion cycle
The cash conversion cycle is the number of days between paying for something and being paid for it. Enter your revenue, cost of sales and payment days, and this calculator returns your cycle, the cash currently tied up in running the business, and how much more you would need to fund growth. Free, no sign-up, nothing you type leaves your browser.
Cash conversion cycle
45 days
You fund 45 days of trading yourself
- Owed by customers
- £123,288
- Stock held
- £32,877
- Owed to suppliers
- −£32,877
- Cash tied up
- £123,288
Growing 50% would tie up about £61,644 more, needed before the extra sales are collected.
Why a profitable business runs out of money
This is the single most common way a healthy-looking business gets into trouble, and the arithmetic is simple enough to do on the back of an envelope.
You buy £10,000 of stock and pay for it in 30 days. You sell it for £18,000 on 60-day terms. On paper you have made £8,000. In cash, you are £10,000 down on day 30 and only £8,000 up on day 60. For a month you are funding your customer's purchase out of your own bank account.
Now double your sales. You have doubled your profit, and you have also doubled the hole. Every month you grow, the gap grows with you, and it has to be funded from somewhere before the growth pays for it. That is what "growing broke" means, and it is why fast-growing companies raise money they appear, on their profit and loss, not to need.
A negative cycle inverts this entirely. If you are paid before you pay your suppliers, growth generates cash rather than consuming it. Supermarkets and many subscription businesses work this way, which is a structural advantage rather than good management.
What this number cannot tell you
Working capital ratios are averages over a year, and averages are exactly the wrong tool for a cash problem, which is always about a specific week.
Averages hide the spikes
"45 debtor days" might mean everyone pays at 45, or half at 20 and half at 70. The cash position those two produce is not the same.
No seasonality
A business that builds stock before a peak has its worst cash month long before its best trading month. An annual average shows neither.
One customer can dominate
If a third of your revenue comes from one slow payer, your blended debtor days are fiction and your actual risk is concentrated.
It is not your whole cash position
Working capital ignores tax, capital purchases, loan repayments and payroll. Those move real money and none of them appear here.
It assumes growth is smooth
The growth figure scales working capital proportionally. Real growth arrives in steps, and the funding is needed at the step rather than spread across the year.
Seeing it month by month instead
Everything above is a ratio. What you actually need is a date: which month your cash gets tight, and how tight.
bluprnts models payment behaviour as an input rather than deriving it as an average. You set how your customers split across 30, 60 and 90 days and how you pay your own suppliers, and the forecast applies that timing to every sale and every cost across the whole plan. Your VAT falls due quarterly, your corporation tax annually, your stock is bought before it sells, and the result is a closing bank balance for every month rather than a single ratio.
That turns working capital from a diagnostic into something you can act on. You can move collections from 45 days to 30 as a scenario and see exactly which months change and by how much, or model the growth you are planning and find out whether the funding gap it creates is survivable before you commit to it.
| This calculator | A forecast in bluprnts |
|---|---|
| An annual average | A closing bank balance for every month |
| One blended payment assumption | Customers split across 30, 60 and 90 days |
| Working capital only | VAT, corporation tax, capex and loan repayments too |
| Growth scaled proportionally | Growth modelled as the sales and costs that produce it |
| A diagnostic | Scenarios you can compare before committing |
Working capital questions
- What is the cash conversion cycle?
- The cash conversion cycle is the number of days between paying for something and being paid for it. It is debtor days plus inventory days minus creditor days. A business that holds stock for 30 days, gets paid 45 days after invoicing and pays its own suppliers after 30 days has a cycle of 45 days, meaning it funds 45 days of trading out of its own pocket.
- How do you calculate working capital requirement?
- Take the money customers owe you, add the value of stock you hold, and subtract what you owe suppliers. Using days: debtors are annual revenue divided by 365 multiplied by debtor days, stock is annual cost of sales divided by 365 multiplied by inventory days, and creditors are cost of sales divided by 365 multiplied by creditor days. The result is the cash tied up in running the business rather than sitting in your bank.
- Why does growth cause cash problems?
- Because working capital scales with revenue. If you grow 50%, you hold roughly 50% more stock and are owed roughly 50% more by customers, and you have to fund that increase before the extra sales are collected. A fast-growing, profitable business can therefore run out of cash, which is the mechanism behind the phrase "growing broke".
- What is a good cash conversion cycle?
- Lower is better, and negative is excellent. A negative cycle means you are paid before you pay your suppliers, so growth funds itself rather than consuming cash. Supermarkets and many subscription businesses run negative cycles. What counts as good varies enormously by industry, so compare yourself against your own trend and your own sector rather than against a universal number.
- How can I reduce the cash tied up in my business?
- There are only three levers: collect from customers faster, hold less stock, or pay suppliers later. Each releases cash without changing your profit at all, which is why working capital is often the fastest source of money in a business that is short of it. Invoicing promptly and chasing consistently usually beats renegotiating terms.
Find the month the gap bites.
Model your payment terms instead of averaging them.
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