The FMCG cash conversion cycle: a 7-day diagnostic

FMCG businesses have a structural advantage that most other industries don't: high volume, high velocity, relatively predictable demand. The downside of that model is that every inefficiency in the cash cycle is also high-volume and high-velocity. Small friction, multiplied across a large number of transactions, becomes a big cash problem.

The cash conversion cycle — how many days it takes to turn your inventory investment into collected cash — is the single most useful number in an FMCG business. Here's how to calculate it, what a healthy number looks like, and how to run a week-long diagnostic to find where yours is leaking.

The three components of the cash conversion cycle

The cash conversion cycle is: Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) − Days Payable Outstanding (DPO).

• DIO: how long inventory sits in your warehouse before it's sold. Lower is better.
• DSO: how long it takes customers to pay you after delivery. Lower is better.
• DPO: how long you take to pay your suppliers. Higher is better — within reason.

A well-run FMCG business targets a CCC of 15 to 25 days. A struggling one often sits at 40 to 60 days. The difference — 20 to 35 extra days of working capital tied up — on a R50M revenue business is between R2.7M and R4.8M of cash that should be in your account but isn't.

Day 1–2: Calculate your current CCC

Pull the last three months of management accounts. You need average inventory (from the balance sheet), cost of goods sold, revenue, accounts receivable, and accounts payable. The formulas are straightforward:

• DIO = (Average Inventory ÷ COGS) × 90
• DSO = (Average Accounts Receivable ÷ Revenue) × 90
• DPO = (Average Accounts Payable ÷ COGS) × 90

Plot the three numbers. Where are you against the 15-to-25-day benchmark? Most businesses I work with already know which number is the problem — they just haven't quantified it.

Day 3: Segment the inventory

DIO is a blended number. Break it down by product category or SKU tier. In most FMCG businesses, 20% of SKUs account for 80% of volume — and those SKUs are turning fast. The problem is the other 80%: slow-moving lines, seasonal lines with poor sell-through, promotional stock that didn't shift.

Identify your top 10 slowest-moving SKUs by days of inventory on hand. These are your working capital anchors. Each one needs a decision: price reduction, promotional push, production volume cut, or discontinuation.

Day 4: Age your receivables

Pull a receivables age analysis. Segment into current (0–30 days), 31–60 days, 61–90 days, and 90+ days. The 90+ bucket tells you which customers are structural problems — not temporarily slow payers, but customers whose payment behaviour is reliably late.

In FMCG, the large retail chains are often the worst payers despite being the most attractive customers from a volume perspective. Quantify the actual cost of their payment terms. If a customer pays at 60 days on a R2M annual account, you're funding roughly R330,000 of working capital for them permanently. That's a negotiating point, not a given.

Day 5: Review your supplier terms

DPO is often the most improvable component in a short timeframe. Check your current payment terms against every major supplier. When were the terms last negotiated? Are you paying on day 30 because you negotiated for it, or because that's what the invoice says and nobody questioned it?

Extending payable terms from 30 to 45 days on R10M of annual purchases improves your working capital position by approximately R410,000 with a single conversation. Not all suppliers will accept it, but the ones who value the volume relationship often will — especially if you're currently paying early.

Day 6–7: Build the improvement case

By day 6 you have three lists: slow-moving SKUs that need a decision, late-paying customers that need a conversation, and supplier terms that haven't been reviewed in years. Quantify the working capital release from realistic improvements in each area.

A realistic CCC improvement programme in a mid-market FMCG business — one that takes 90 days to execute — typically releases between R500K and R2M in working capital. That's not revenue growth. That's cash that was already yours, sitting in the wrong place.

“In FMCG you're not looking for a silver bullet — you're looking for 15 small decisions that each improve the cycle by two days. The aggregate is what moves the number.”

If your CCC is above 35 days and you haven't looked at the three components individually, the diagnostic above is where to start. Take a seat in the boardroom and tell me what your current numbers are. We'll run the analysis together.