How long is each pound tied up before it comes back?
The number of days between paying for stock or costs and collecting the cash from customers. The shorter it is, the less cash the business needs to grow, and the less it has to borrow.
Get a finance reviewStock days + Debtor days − Creditor days. Stock days = Stock ÷ (Cost of sales ÷ 365). Creditor days = Trade creditors ÷ (Cost of sales ÷ 365)
Depends heavily on the model. Direct-to-consumer brands paid at checkout can run under 30 days or negative; stock-heavy wholesale businesses often exceed 90 days.
The time taken to turn money spent into money received. It adds the days stock is held to the days customers take to pay, then subtracts the days the business takes to pay its suppliers. A negative cycle means customers pay before suppliers need to be paid.
Growth consumes cash when the cycle is long, because every extra sale ties up more money in stock and unpaid invoices before it comes back. This is why profitable businesses can run out of cash while growing. Shortening the cycle by even a few weeks can release significant working capital, which is usually cheaper than borrowing it.
Calculate each part separately so you know which lever to pull: stock, customer terms or supplier terms. Use averages over the period rather than year-end balances, which can be unusually high or low. Be careful stretching supplier terms too far, as it can damage relationships and supply. For e-commerce, include stock held with marketplaces and third-party warehouses.
Most owner-managed businesses don't, or they work it out in a way that flatters the result. We'll calculate it from your own numbers and show you what it's telling you.
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