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Cash Conversion Cycle Analysis in Dollars
Each leg on its own denominator, each day converted to cash, and the whole thing compared against what your borrowing actually costs.
River's cash conversion cycle analysis works the three legs on their correct denominators, then converts every day into dollars at your own cost of money. Most templates divide all three balances by revenue, which understates inventory days and payables days at the same time. The total barely moves. The diagnosis inverts, because a company told its inventory sits at 35 days when it sits at 50 will go looking for cash in the wrong place. Both legs are understated, so the total looks nearly right while both levers read wrong.
Then it prices each day, which is where the ratios stop being ratios. A day of DSO at Ardenwood Provisions is 133,151 dollars and a day of inventory is 93,205, so five days off receivables is worth 43 percent more than five days off stock. Nobody hands you three day-counts and mentions that they are different sizes. The 13 week cash forecast is where the freed cash actually lands, week by week.
Written for the CFO or controller who has been told to free up working capital and needs to know which lever to pull first. The payables side of a tight week runs through the payment prioritization memo. Where a revolver funds the gap, the covenant headroom forecast says how much room the borrowing has before a ratio test bites. If the payables balance itself is wrong, start with the duplicate payment scan.
Stretching payables is the most expensive money you can borrow
The standard advice on the payables leg is to extend it, and on discount terms that advice is expensive. Ardenwood buys 14.2 million dollars a year on 2/10 net 30 terms. Paying on day 30 instead of day 10 frees 778,082 of cash and gives up 284,000 of discount to do it. Financing the same 778,082 on its revolver, priced at the published prime rate plus 150 basis points, costs 64,192. Those are the two numbers to compare, and no template computes either.
Forgoing a two percent discount for twenty days annualizes at 37.2 percent, roughly five times the loan. Taking the discount and borrowing is 219,808 a year better, which is the reverse of what the working capital advice says. That is what pricing a day gets you. Ardenwood's cycle held 9,075,205 of working capital at 71.7 days, carrying 748,704 a year at 8.25 percent, which is the figure every proposed move gets measured against.
A blended DSO of 61.2 days is one number covering four customer populations with four different floors. Ardenwood's independent restaurants are 16.5 percent of revenue and 39 percent of the recoverable cash. Its grocery chains are 46.1 percent of revenue and 19 percent of it, because the contract says net 60 and eight days is all there is. Its federal customers sit against a 30 day statutory payment period, so that leg has a floor no collections effort moves.
How it works
Add the reports
AR aging, AP aging and an inventory report, plus the income statement they belong to.
Give me your rate
What the revolver or the term loan actually costs, because that is what prices a day.
River works the legs
Three ratios on proper denominators, each day in dollars, and the segments underneath the blend.
Pick the lever
A ranked list of moves, each carrying the annual cash it frees and what it costs.
What you get
- Each leg divided by its own denominator, so inventory days are not measured against revenue
- Every day of the cycle converted into dollars, then into annual carrying cost
- DSO broken out by customer population, each with the floor it can actually reach
- Discount terms priced against your revolver, so extending payables is not assumed to help
- Four quarters of the cycle side by side, so a trend is visible rather than asserted
- One ranked list of moves with the annual cash value of each one attached
Common questions
Why does the denominator matter that much?
Because inventory turns against cost, not against revenue, and payables turn against purchases. Divide all three by revenue and Ardenwood's inventory reads 35 days when it is 50, and its payables read 28 days when they are 39.5. The cycle total is only 3.6 days out, which is why nobody notices, and both levers read wrong.
Is stretching payables really a bad idea?
On discount terms it usually is. Giving up two percent to hold cash twenty days longer annualizes at 37.2 percent, and Ardenwood's revolver is 8.25. Taking the discount and borrowing the same money is 219,808 dollars a year better. On terms carrying no discount, stretching is close to free and the analysis says so plainly.
What rate should I use for the cost of a day?
Your actual marginal cost of cash, which is the revolver if it has headroom and something dearer if it does not. The published prime rate is where most revolvers start and your spread sits on top of it. If you carry no borrowing at all, say what you would do with the cash instead and that becomes the rate.
We sell to government agencies. Does that change the analysis?
It puts a floor under that leg. A federal payment period runs 30 days from the later of a proper invoice or acceptance, so no collections effort takes it below that. Late payments also carry interest at the rate Treasury publishes each half year, 4.75 percent for the second half of 2026, and most suppliers never invoice for it.
Why break DSO out by customer?
Because a blend hides where the days are. Ardenwood's independents are 16.5 percent of revenue and 39 percent of the recoverable cash, while its grocery chains are 46.1 percent of revenue and 19 percent of it, capped at eight days by contract. A blended number sends the effort at the biggest balance rather than the biggest gap.
How far back should the analysis go?
Four quarters, so seasonality does not read as a trend. A distributor building stock ahead of a season looks like it is losing control of inventory if you measure only the quarter, and looks fine if you measure only the year. Both readings are wrong, and the quarterly series is what settles it.
What happens once I know the number?
You choose, and the ranked list makes that a short conversation because every move carries its annual cash value beside its operational cost. Collections mechanics come out of the AR collections pack, and anything the analysis could not conclude is named along with the data that would settle it.
Cash Conversion Cycle Analysis in Dollars
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