Why this is mistaken
A shorter cycle can release working capital, but it may arise from stockouts, restrictive customer credit, delayed supplier payment, lost discounts, or a different business model. Reconcile all three components, then inspect service, terms, aging, demand, supplier, and cash evidence.
Where to watch
When this mistake may appear
- Two entities have different cash conversion cycles.
- A component changes in a direction that shortens the cycle.
Check your work
Your work may contain this mistake if:
- Recommends delaying suppliers because DPO subtracts from the cycle.
- Calls a negative cycle proof of permanent liquidity.