Cash conversion cycle

BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED 2026-11-01

// THE SHORT ANSWER

The cash conversion cycle is the number of days between paying for inputs and collecting the cash a sale produces: debtor days plus inventory days minus payables days. A lender uses it as the arithmetic behind a working capital limit — the cycle in days, divided by 365, multiplied by revenue, gives the working capital the business carries at its current size (strictly, debtor days on revenue and inventory and payables days on cost of sales), and the same calculation run on the revenue increment gives what recent growth has absorbed. Sizing the need this way before reading the borrower's request is what makes the request legible: it is either inside that number, roughly equal to it, or a fraction of it, and each of those is a different conversation.

BASIS  Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.