ClearCFO learning guide · Updated 27 September 2026 · Educational information
Start with three clocks
DSO estimates collection time, DIO estimates inventory holding time and DPO estimates supplier-payment time. The cash conversion cycle is DSO + DIO − DPO. Use average balances and flows from consistent periods wherever possible.
Separate the definitions
Operating NWC here means trade receivables plus inventory less trade payables. Total net working capital means all current assets less all current liabilities. Do not mix these definitions in comparisons or transaction discussions.
Investigate the driver
A longer cycle may come from disputed invoices, a new credit policy, supply buffers or a change in product mix. A negative cycle can be normal for some business models. It does not automatically establish liquidity strength.
Take a practical next step
Review ageing and stock quality before setting targets. Work within agreed supplier terms; stretching overdue payments can damage supply continuity. Track actual cash collected alongside any modelled release.
Further reading: ACCA: working capital management.
Examples are illustrative and simplified. Apply definitions and assumptions appropriate to your business; obtain professional review for material decisions. Read the financial disclaimer.