All 21 Aging Analysis questions
More in Aging Analysis
What does it mean when receivables are 'current' versus 'past due'? What is a weighted-average days overdue and why is it useful? How is Days Sales Outstanding (DSO) calculated and what does it indicate? What is Days Payable Outstanding (DPO) and how does it relate to aging? How is aging used to prioritize collections activity? How do you reconcile the aging report to the general ledger control account? What red flags can an aging report reveal? What is 'best possible DSO' and how does it differ from standard DSO? How does disputed AR distort aging and what should you do about it? How does aging support inventory of unapplied credits on customer accounts?
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Accounts Payable & Receivable › Aging Analysis

What is the cash conversion cycle and how do AR/AP aging feed it?

Intermediate

Answer

The cash conversion cycle (CCC) = DSO + DIO (days inventory) - DPO. It measures how long cash is tied up in operations. AR aging drives DSO, AP aging drives DPO; improving collections (lower DSO) or extending payables sensibly (higher DPO) shortens the CCC and frees working capital.
CCC = DSO + DIO - DPO = 45 + 60 - 35 = 70 days.
Cutting DSO to 35 shortens CCC to 60 days.
Real-world example Reducing DSO by 10 days through better collections cuts the cash conversion cycle and reduces borrowing needs.

Common follow-ups: How does a shorter CCC help? | Which levers shorten the CCC?

Collections & Bad Debts Payment Runs Aging Analysis
All 21 Aging Analysis questions