How this calculation works
Retain the payment interval as a subtraction and leave negative cash-cycle results visible. Balance mode derives each interval from the named numerator and period flow, including an explicit credit-purchases denominator for payables.
Cash cycle = inventory days + collection days − payment days; operating cycle = inventory days + collection daysA worked example
With inventory held for 60 days, collection taking 30 days and supplier payment after 45 days, the operating cycle is 90 days and the cash conversion cycle is 45 days.
Good to know
A timing description rather than a cash-flow forecast or liquidity/credit judgment. Balance mode needs compatible averages and flows for one period and uses credit purchases for payables; COGS-proxy reports can differ. No currency conversion or report-data fetching.
Reference: Reference: model definitions and scope (opens in a new tab) ↗
The operating cycle and cash cycle have different endpoints
At the default 60 inventory days and 30 collection days, the operating cycle is 90 days. Subtracting 45 payment days gives a cash conversion cycle of 45 days. Removing the subtraction or adding payment days would answer a different timing question.
A negative result is retained. For example, 20 inventory days plus five collection days less 40 payment days gives −15 days. That can describe collection before the modeled supplier-payment interval ends. It does not prove the business is profitable or that every future payment is covered.
The inventory turnover calculator checks a separate inventory-period ratio. A cash cycle combines timing intervals and does not forecast actual available cash.
Balance mode needs matching averages and explicitly chosen flows
Balance mode uses average inventory over COGS, average credit receivables over credit sales, and average trade payables over credit purchases, each multiplied by the same period length. All amounts must be in one currency and relate to compatible activities and dates. No exchange conversion or report extraction is performed.
Some reports estimate payables days using COGS as a proxy rather than supplier credit purchases. Those bases need not match. This page explicitly labels the credit-purchases denominator; the linked working-capital reference discusses a COGS-based convention. Differences in reporting definitions should be resolved before comparing results.
A shorter interval is a scenario, not an automatic business instruction
The comparison reduces inventory days by ten, reduces collection days by ten, or increases payment days by ten, one change at a time. A reduction is limited at zero rather than becoming a negative inventory-holding interval. Each change illustrates the equation while keeping the other intervals fixed.
The inventory turnover calculator can check an inventory-days basis separately. The reorder point and inventory position calculator addresses an operational stock trigger, not the cash interval. Changing stock or payment policy can affect service, supplier terms and other costs; this timing calculation does not optimize those tradeoffs or forecast actual bank balances.
A few questions, answered
Can cash conversion cycle be negative?
Yes. The payment interval can exceed inventory plus collection intervals. The signed result is not a profitability or liquidity guarantee.
Why can another report give different payables days?
The denominator may use credit purchases, COGS as a proxy or another scope. This balance mode explicitly uses entered credit purchases.
Are balance averages calculated from opening and closing values here?
No. Enter the average appropriate to the reporting period. The tool does not infer it from missing balance history.
Does the scenario table recommend delaying payment?
No. It only changes one timing input to show the arithmetic effect.