Cash conversion cycle

The cash conversion (including cash conversion cycle, English: cash conversion cycle, asset conversion cycle, net operating cycle, working capital cycle or short cash cycle) refers to the business controlling the duration of the bond cash ( cash) in the current assets of the company.

It is calculated from the average duration of storage ( stock days ) plus the average collection period ( duration of the debt collection or customer target, debtor days ) minus the average payment terms with suppliers ( suppliers aim creditor days ):

The cash conversion cycle is generally regarded as a function with the industry, some are large differences between production processes and payment. A relatively short cash conversion cycle indicates an efficient liquidity and / or production management. It consequently, there are three possibilities for the optimization of the money envelope:

• Through an efficient and fast production, the retention of the money is reduced in the process of service. This results in the possibility of faster delivery to the customer and filing the claim with respect to this.
• The agreement shortest possible terms of payment with the clients, which may with the granting of discounts, accelerates the return of the money in the company.
• On the supply side, however, the goal is long contractual payment periods as possible.

The shorter the capital is tied up, the faster it is for any other (eg, investment- ) use.

Swell

• Franz X. Frotzler: Cash Management. Tools for planning, scheduling and control of cash and cash equivalents. About Reuter Verlag, Wien 1993, ISBN 3-8000-9109-7.