THE CASH CONVERSION CYCLE — Cash Before Growth

The cash conversion cycle counts the days between paying for stock and getting paid for it: inventory days plus receivable days minus payable days. Each part looks different for a DTC brand.

The three parts, DTC version

Inventory days. Software measures from when goods land. Measure from when you pay.
Receivable days, which for you is payout lag. Shorter than a wholesaler’s 30 or 60 days, but not zero, and holds can stretch it.
Payable days, which for many brands run backwards. Net-30 means paying 30 days after arrival. An importer paying a deposit at order and the balance at shipment pays months before arrival: negative payable days.

Stock on the water is stock you own. Count the cycle from the day you pay.

Payout lag, processor by processor

These are the terms processors publish for US merchants, as of September 2026. Your agreement may differ, so check your own reports.

Processor	What it says	What it means for the cycle
Shopify Payments	Settles in 3 business days in the US; weekends and holidays don’t count, so a Friday order pays out on Wednesday. The bank then takes about 1 to 3 business days. Payouts to a Shopify Balance account can arrive within 1 business day.	About 4 to 10 calendar days from sale to usable cash, longest for Friday sales
PayPal	Money reaches your PayPal balance at once, but risk-based holds “generally remain in place for up to 21 days”; uploading tracking can release them earlier.	Near zero for an established account; up to three weeks for a new or flagged one
Affirm	Sends a daily transfer; your bank receives it within 1 to 3 business days.	A few days, like a card
Afterpay	“You get your money in 1-2 business days.”	A few days, like a card
Klarna	Says merchants get paid “even if your customers don’t pay us.” Settlement timing depends on your agreement.	Check the payout delay in your contract

ReportedShopify Help Center, payout timing; PayPal User Agreement, holds; Affirm Business Hub, settlements; Afterpay and Klarna US merchant pages. All read September 2026.

With buy now, pay later, the customer pays over weeks but the brand usually doesn’t wait; the provider carries the credit risk and charges a higher fee, which belongs in contribution margin (see The Whole Machine). What belongs here is holds. A reserve held for 90 days, or a 21-day hold on a new PayPal account during a launch, can matter more to your cash than any fee.

Put your cycle in one number

The tool counts the cycle from the day each payment leaves, weighting deposit and balance by their share of the order. With net terms, enter 0 for the balance before arrival and your terms after it.

Run your numbers

Your cash conversion cycle

Example numbers for a brand importing its product. Replace with yours, from your last purchase order and your inventory report.

Revenue over the last 12 months

Gross margin

Days stock sits after it arrives, before it sells

Payout lag, sale to cash in the bank

Deposit, as a share of the order

Deposit paid, days before goods arrive

Balance paid, days before goods arrive

Or: balance paid, days after goods arrive (net terms)

cash conversion cycle

tied up in the cycle right now, on average

freed by each day cut from shelf time or supplier timing

tied up by each extra $100,000 of yearly sales

Stock and supplier payments are valued at cost; money waiting for a payout is valued at the sale price. Use averages across your main products, or run it once per product family. If your deposit is paid when the order is placed, the deposit days are production time plus transit time.

With the defaults, the cycle is about 134 days: 75 on the shelf, 4 waiting for payouts, and an average of 54.5 days of paying the supplier before the goods arrive. About $917,000 is tied up at any moment, and every extra $100,000 of yearly sales ties up about $15,300 more. Each day cut from shelf time or supplier timing frees about $6,575.

Days beat rates

Founders spend hours on a loan’s rate and minutes on the cycle. On the defaults, cutting 20 days frees about $131,500; at a 12% borrowing cost, not needing that money saves about $15,800 a year. Cutting two points off the rate on a $500,000 loan saves $10,000 Derived. And the days keep paying as you grow.

Do this

Run the tool for your top three product families from each one’s last purchase order. Then check 90 days of payout reports for the real lag, holds included.

This is one chapter of Cash Before Growth, which is free and readable in full on a single page with no form in front of it.