The length of time (in days) that it takes a company to convert its inventory into cash flows from sales those goods; adjusted for the grace provided by suppliers to repay them for inventory and/or purchases. In the case of service based companies, it is the length of time (in days) to collect cash after services are rendered adjusted for any payables that have accrued to generate those sales (e.g. subcontractor payables). Ideally a company with a very low cash conversion cycle does not require a lot of working capital to operate its business compared to one that has a long cycle. Notably, while a company waits to convert inventory or services into cash, it must still pay operating costs (payroll, rent, utilities, communications, etc.) to maintain operations.
