The cash conversion period measures the amount of time it takes to turn the sale of your product or service into cash available for cash outflows. You might say the cash conversion period looks at the "big picture" by taking into consideration the events that happen before the sale, as well as the events that occur after the sale. How long it takes to complete each event in the conversion period may surprise you.
The graphic below is an illustration of the typical cash conversion period for many businesses.
Cash Conversion Period
|The Purchase Decision and Ordering|
|The Credit Decision|
|Order Fulfillment, Shipping, and Handling|
|Billing the Customer|
|The Average Accounts Receivable Collection Period|
|Payment and Deposit|
Each box represents a different event in the cash conversion period.
Completing each event takes a certain number of days. The total number of days
it takes to go from the "Purchase Decision and Ordering" event to the
"Payment and Deposit" event is the cash conversion period. Shortening
the cash conversion period is an important step in accelerating your cash