Cash Conversion Period

The cash conversion period measures the amount of time it takes to turn the sale of your product or service into cash available for cash outflows. You might say the cash conversion period looks at the "big picture" by taking into consideration the events that happen before the sale, as well as the events that occur after the sale. How long it takes to complete each event in the conversion period may surprise you.

The graphic below is an illustration of the typical cash conversion period for many businesses.

Cash Conversion Period

The Purchase Decision and Ordering

The Credit Decision

Order Fulfillment, Shipping, and Handling

Billing the Customer

The Average Accounts Receivable Collection Period

Payment and Deposit

Each box represents a different event in the cash conversion period. Completing each event takes a certain number of days. The total number of days it takes to go from the "Purchase Decision and Ordering" event to the "Payment and Deposit" event is the cash conversion period. Shortening the cash conversion period is an important step in accelerating your cash inflows.