Shortening the cycle beats borrowing more
Cutting inventory days or collecting receivables faster reduces the gap directly — often more cheaply than carrying a larger credit limit and paying interest on it. Planning beyond one operating cycle? See the Business Valuation Calculator.
Frequently asked questions
What is the cash conversion cycle?
The number of days your cash is tied up in the business before it comes back — inventory days plus receivable days, minus the days your suppliers let you delay payment. A longer cycle means more working capital is needed to keep operating.
Why does the bank only finance part of the gap?
Banks typically expect the business owner to fund a margin of the working capital requirement from their own resources (commonly around 25%) and finance the rest — this is the standard approach used in cash-credit limit assessment.
Should inventory and payables use sales value or cost?
This uses cost (via your gross margin) for inventory and payables, since that's what you actually paid to hold or owe for goods — receivables use the full sales value, since that's what's actually outstanding from customers.
Last updated: June 2026