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The cash conversion cycle.
A profitable company can still run out of cash. The cash conversion cycle is the reason, and it is measured in days, not pounds. This guide sets out the formula, works a simple illustrative example, and shows where a short company bridge fits the gap it describes.
Profit is not the same as cash
A company books profit when it earns; it holds cash only once it has actually been paid. The gap between the two is timing.
A business can be profitable on paper and still struggle to pay its own bills. That is not a contradiction — it is timing. Profit is recorded when a sale is made and a cost is incurred. Cash moves on a different schedule: you pay suppliers and staff before the customer pays you, and you may buy and hold stock for weeks before any of it sells. Between the moment cash leaves and the moment it returns, the company has to fund itself.
The cash conversion cycle puts a number of days on that gap. It measures how long the company's cash is tied up in the operating process before it comes back as cash again. The longer the cycle, the more working capital a business of a given size has to carry.
The formula, in three parts
Receivables days, plus inventory days, minus payables days. Each part is a count of days, and the three combine into the cycle.
| Part | What it measures | Effect on cash |
|---|---|---|
| Receivables days (+) | How long, on average, customers take to pay you after you invoice them. | Longer ties cash up for longer. |
| Inventory days (+) | How long stock sits before it is sold. | Longer ties cash up for longer. |
| Payables days (−) | How long you take to pay your own suppliers. | Longer frees cash up — your suppliers fund you for the period. |
Put together: cash conversion cycle = receivables days + inventory days − payables days. A service business that holds no stock simply drops the inventory term. The result is the number of days the company funds its own operation before the cash cycles back.
A worked example
An illustrative trading company — figures invented to show the mechanics, not a real customer.
Picture an incorporated wholesaler. It buys stock, holds it for a while, sells on 30-day terms to trade customers, and pays its own suppliers on 30-day terms. Suppose the books show:
| Measure | Days |
|---|---|
| Inventory days — stock sits before it sells | 40 |
| Receivables days — customers take to pay | 45 |
| Payables days — the company takes to pay suppliers | 30 |
| Cash conversion cycle (40 + 45 − 30) | 55 |
The company funds 55 days of its own operation before the cash comes back. Now grow it. A larger order means more stock bought up front and a bigger receivable to wait on. The cycle stays at 55 days, but the pounds tied up in it rise. This is the awkward truth of profitable growth: the faster the company grows, the more cash the cycle swallows — even as the profit-and-loss account looks healthier than ever. A short, predictable shortfall opens up between paying out and being paid.
You can size that shortfall for your own company with the working-capital gap calculator, and check how many weeks of cover you hold with the cashflow runway calculator.
Shortening the cycle first
Before funding the gap, see whether you can narrow it. Every day shaved is working capital released for free.
- Reduce receivables days. Invoice promptly, tighten terms, chase early, and make it easy to pay. Persistent late payers widen the gap — the late-payment interest calculator shows what that delay is worth.
- Reduce inventory days. Hold less stock, order more often, and clear slow-moving lines. Cash sitting on a shelf is cash not in the bank.
- Lengthen payables days, carefully. Agreed longer terms with a supplier free up cash — but stretching beyond what was agreed damages the trade-credit record covered in building business creditworthiness.
Operational tightening should always come first. But there is a floor: a viable business needs some stock and offers some terms, so the cycle rarely falls to zero. Past that floor, a genuine timing gap remains.
Where a short company bridge fits
For a defined, short timing gap with a clear repayment date, a small fixed-term bridge is shaped to fit the cycle.
When the gap is the cash conversion cycle — a known amount, covering a known number of days, with money you can see arriving at the end — the shape of finance that matches is a short, fixed-term loan. You borrow the sum, cover the gap, and repay when the receivable lands. That is exactly what the Credicorp Business Bridging Loan is built for: £50–£500 over 14–84 days, priced at 0.25% per day on the outstanding principal, with a one-off £5 establishment fee and the total cost capped at 100% of the principal. The borrower is the company, with no personal guarantee.
A bridge suits a one-off, time-limited gap. If the shortfall is instead a recurring rise and fall, a revolving facility may fit better; if it is a single supplier bill, instalments may be the cleaner answer. Matching the shape of the finance to the shape of the need is the whole subject of choosing the right business finance. What a bridge is not for is plugging a permanent, structural cash deficit — that is a profitability problem, and borrowing only postpones it.
Where to go next
- Working-capital gap calculator — size the shortfall for your own company.
- Choosing the right business finance — match the shape of finance to the need.
- Building business creditworthiness and Open Banking for business finance.
- The Business Bridging Loan and the other products, and the glossary.