The bee arrives before the bud opens. A few centimeters away, one flower is still closed; further back, another is already in bloom. The first is an opportunity that isn't available yet. The second is something that can be used now. The bee seems to anticipate what's about to happen.
The image captures one of the most important challenges a company faces: having a sale isn't the same as having money available.
A company can sell, grow, make a profit and build up its receivables. But until its customers pay, it needs other funds to keep operating. The problem isn't always selling too little. Sometimes, paradoxically, it shows up when sales grow.
1. A sale doesn't always turn into money right away
Picture a company that sells goods worth 100 million to a customer on sixty-day terms. The sale is recorded, but the money hasn't reached its accounts yet. For those sixty days the company holds a right to collect, not funds it can use to pay. Meanwhile it still has to pay suppliers, employees, taxes and other commitments, so it may need to finance its operations while it waits.
Three distinct moments come into play:
- Selling: completing a commercial transaction that generates revenue and, when it's on credit, a right to collect.
- Collecting: actually receiving the money from that sale.
- Having the money available: being able to use those funds to meet commitments, subject to any conditions and restrictions.
In a cash sale, all three coincide. When there's trade credit, they can be separated by days, weeks or months, and that gap in time hits liquidity directly.
2. What the cash conversion cycle is
The cash conversion cycle is an indicator that approximates how long money stays tied up in a company's operations before it comes back through customer collections.
Think of a company that buys goods to resell. First it buys inventory. Then it holds it until it sells. If it sells on credit, it waits for the customer to pay. And at the same time it may have terms to pay its supplier. The cash conversion cycle links those three periods.
Its value lies in showing how commercial, operational and financial decisions combine into working capital needs, because a company can be profitable and still need financing to cover the time between its payments and its collections.
3. The three indicators behind it
- Days inventory outstanding (DIO): the average time inventory stays in the company before it's sold. The longer it is, the longer funds stay tied up in goods or raw materials.
- Days sales outstanding (DSO): the average time it takes the company to collect its trade receivables. If it rises, customers may be paying more slowly, or terms or the sales mix may have changed.
- Days payable outstanding (DPO): the average time the company takes to pay its suppliers. It's a form of operating financing and sets when money goes out.
The three are related like this:
Cash conversion cycle = DIO + DSO − DPO
The result approximates how long the company has to finance its operations with funds other than the credit its suppliers give it.
4. An example: money takes 65 days to come back
Suppose a company has these indicators:
| Indicator | Days |
|---|---|
| Days inventory outstanding (DIO) | 50 |
| Days sales outstanding (DSO) | 45 |
| Days payable outstanding (DPO) | 30 |
| Cash conversion cycle | 65 |
The calculation is 50 + 45 − 30 = 65 days. In this simplified example, the company pays its supplier thirty days after buying, sells on day fifty and collects forty-five days after selling, that is, around day ninety-five. Sixty-five days pass between paying the supplier and collecting, and during that time the company has to finance what its operations have tied up.
Inventory (days inventory outstanding)50 days
Receivables (days sales outstanding)45 days
Supplier terms (days payable outstanding)30 days
Cash conversion cycle: days to finance65 days
The indicator uses averages, so it doesn't mean every transaction follows that exact calendar: terms vary across customers, suppliers and products. But it reveals an important need: operations consume funds while cash makes its way back.
5. Why a growing company can run out of cash
It's one of the most interesting aspects of the cycle. Growing sales are usually seen as a good sign, and they can be. But when a company sells more, it may also need to buy more inventory, produce more, hire staff or take on higher costs. If it sells on credit, the money to sustain that growth goes out before collections come in.
Picture a company that doubles its sales on the same commercial terms. To meet the new demand it needs to buy more and finance a larger receivables book. Even as projected sales and profits rise, so does the money tied up in inventory and receivables. If the company doesn't have enough liquidity or the right financing, it can run into trouble right in the middle of its expansion.
Growing doesn't always mean having more money. Sometimes growing requires having more money before you receive it.
That's why commercial and expansion decisions need to come with an assessment of working capital needs.
6. Is a shorter cycle always better?
In general, cutting the time money stays tied up in operations improves liquidity. But not every cut makes sense. A company could reduce its inventory and run out of products to sell. It could demand faster payment from customers and lose ground to competitors offering better terms. And stretching supplier terms too far can damage the relationship or bring extra costs.
The goal isn't to shorten the cycle at any cost, but to understand how each component affects the company's needs and find a balance that fits its operations and strategy. Some businesses even have negative cycles: they collect from customers before they have to pay suppliers, and their commercial terms help finance operations. There's no ideal cycle that suits every company.
7. Treasury's role
It's worth separating responsibilities here. Managing receivables, customer credit and collections may sit with sales, finance or a specialized team, depending on how the company is organized. Treasury isn't necessarily responsible for collecting every invoice.
Its responsibility is different: understanding when those receivables are expected to turn into available funds and how they'll affect liquidity. That requires information on expected collections, committed payments, available balances and alternative sources of financing.
If the company expects to receive 5,000 million in fifteen days, treasury has to include it in its forecast. But it also has to assess what happens if the money arrives later:
- Will it be able to meet scheduled payments?
- Will it have to redeem investments?
- Will it need to draw on a financing line?
- Are there other inflows that could cover the gap?
Treasury uses business information to anticipate its effect on cash. It doesn't replace sales management or collections: it complements them from the standpoint of cash availability and timing.
8. The invoice date isn't the collection date
A common mistake in forecasts is assuming collections arrive exactly when the commercial terms say. An invoice has a due date, but the customer may pay early, on time or late. That's why a cash flow forecast has to distinguish between the invoice date, the due date and the date the collection is expected, and the latter has to be based on reasonable information about how customers pay.
For example, a company may know that a certain customer usually pays about ten days after the due date. That deserves attention from the receivables side, but it also has an immediate consequence for treasury: the money may not be available on the expected date, and anticipating it lets you prepare decisions. It's one of the causes covered in Why do cash flow forecasts fail?
An invoice says how much you expect to collect. A liquidity forecast needs to estimate when that money will be available.
9. From the average indicator to the actual movement of money
Days of receivables, inventory and payables are useful for assessing working capital, but they're averages. A company can have 45 days of receivables on average and still have some customers paying in cash, others at thirty days and others after ninety.
For day-to-day treasury, those differences are crucial. The average helps you see trends and structural financing needs, but it doesn't replace a detailed forecast with the amounts and dates of each inflow and outflow. A company can have a stable cycle and still face a one-off shortfall because several payments land in the same week, which is what liquidity risk measures day by day.
That's why management needs to combine working capital indicators with detailed timing information.
10. From knowing sales to anticipating collections
A company can have excellent sales reports: sales by customer, product, region and period, pending invoices and due dates. That data is more useful to treasury when it helps explain how it will turn into cash inflows.
Bringing information together and analyzing it helps connect today's balances, expected collections and future commitments. A dashboard can show expected collections for the coming weeks and the cash needs that have to be met before they arrive, and comparing actual collections with past forecasts reveals deviations, which is what forecast accuracy measures.
But a tool doesn't turn a receivable into money, nor does it remove the risk of how customers behave. Its contribution is helping you understand and anticipate the effect on cash.
11. The lesson of the bee and the bud
Back to the opening image. The bee approaches a flower that hasn't opened yet: it's a possibility, but it doesn't yet offer what the bee is looking for. In the background, another flower is already in bloom. In the metaphor, one is value that hasn't turned into cash yet; the other, funds that can already be used.
The bee is a reminder of the importance of anticipating, but also of something fundamental: arriving early doesn't make the funds available any sooner. Treasury works the same way. A sale has value, but until the customer pays, that value isn't cash yet, and the company has to prepare for the time between the two moments: knowing its obligations, anticipating its collections and managing what it has while it waits.
Because in treasury it isn't enough to know the money will arrive. It also matters whether it will arrive when it's needed.
FLIQO: intelligence to anticipate when money will be available
Liquidity management needs to understand not only today's funds, but the inflows and outflows that will change how much is available.
FLIQO is an operational liquidity intelligence platform: it forecasts cash using the date money is expected to move —not the invoice date—, compares it against the minimum available reserve and measures how well past forecasts held up. It doesn't replace sales management or collections: it helps treasury understand how expected collections and payments will affect cash.
Because a sale has value from the moment it's made. But for treasury, the decisive moment is when that value turns into money you can use.
Anticipate liquidity. Understand the figures. Decide with confidence.
