Cash Conversion Cycle — Why Profitable Businesses Run Out of Cash

SKILL.md

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name: cash-conversion-cycle
description: "Activate when: a profitable-on-paper business is short on cash; 'we're profitable but always broke', managing working capital, inventory or receivables tying up cash; DSO/DIO/DPO. Do NOT activate when: a pure digital business with instant payment and no inventory/receivables (cycle ~0)."
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# Cash Conversion Cycle — Why Profitable Businesses Run Out of Cash

## Overview
The cash conversion cycle (CCC) measures **how long cash is trapped between paying suppliers and collecting from customers**: CCC = DIO (days inventory) + DSO (days receivables) − DPO (days payables). A long CCC means growth *consumes* cash — the faster you grow, the tighter you get — which is why profitable SMBs go insolvent. Shortening the cycle frees cash without raising a dollar.

## The Process
1. **Measure the three components** — DIO (inventory held), DSO (time to collect), DPO (time you take to pay).
2. **Compute CCC** and see how many days of cash are locked in operations. *Gate: if CCC × daily burn exceeds your cash buffer, growth is a liquidity risk, not just an opportunity.*
3. **Shorten DSO** — invoice immediately, deposits/upfront, faster terms, autopay, chase overdue (pairs with ar-dso-discipline).
4. **Shorten DIO** — less/just-in-time inventory, drop-ship, faster turns.
5. **Lengthen DPO sensibly** — negotiate supplier terms without harming the relationship.
6. **Model growth against the cycle** — project the cash a growth plan will absorb *before* committing. *Gate: scaling with a long CCC and no cash cushion is how solvent firms fail.*

## When to Use
- "Profitable but always cash-strapped"
- Inventory- or receivables-heavy businesses
- Planning a growth push that will absorb working capital

## Applying It Well
- Upfront payment/deposits is the single biggest DSO fix for services.
- Negative CCC (customers pay before you pay suppliers) is a growth superpower — design toward it.
- Every day cut is cash freed with no dilution or debt.

## Red Flags
- Reading the P&L (profit) while ignoring cash timing.
- Growing bookings while receivables balloon.
- Paying suppliers early while customers pay late.

## Verification
- [ ] DIO, DSO, DPO measured; CCC computed
- [ ] CCC cash need compared to buffer
- [ ] Levers applied (upfront/terms/inventory)
- [ ] Growth plan modeled against working-capital draw

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*Part of **deciqAI Knowledge Skills** — 223 open-source thinking skills that make rigor executable for AI agents. The same skills power every deciqAI agent, which runs them autonomously to operate your company. **See it run → https://www.deciqai.com/c/cash-conversion-cycle** · ⭐ Star the repo → https://github.com/deciqAI/knowledge-skills · Contributions welcome.*