There was once a pharma company in Gujarat called Shakti Pharma. Founded by Rameshbhai, a no-nonsense, first-generation businessman, it made solid medicines and sold them across India.

Every year, revenue grew. The sales charts looked great. But every time Ramesh checked his bank account at month-end, it felt like a scam.

“Where is the bloody cash?”

That one question started a journey. A journey that had nothing to do with profit… and everything to do with how money moves inside a business.

Debtor Days - The Waiting Game

The first shock was about customer payments.

Ramesh thought: I sold the medicine. They’ll pay next week, right?

Wrong.

Some paid in 60 days. Some in 90. One government hospital took 120 days and still delayed.

His accountant explained: “Sir, our average Debtor Days is around 75. That means, from the day you bill someone, you wait 75 days to get paid.”

Ramesh stared at the ceiling. “So the sale is real - but the cash is imaginary for 2.5 months.”

Exactly.

Inventory Days - The Pile of Dead Money

Next came the godown.

Everywhere he looked, there were cartons of finished goods. Ready but unsold. Medicines, syrups, injectables… just sitting.

“Why is this not moving?” he asked.

The warehouse guy shrugged, “This is normal, sir. We have around 3 months of inventory.”

“THREE MONTHS?”

That’s when he learned about Inventory Days - how long stock sits before it gets sold.

That’s not just boxes. That’s cash lying on the floor, doing nothing.

Days Payable - The Only Good News

Now he looked at the flip side.

They bought chemicals, bottles, and caps from vendors. But… did they pay instantly?

Nope. The vendors gave 60- to 75-day payment terms.

That was a relief.

His accountant said: “Sir, this is called Days Payable. You take 75 days to pay suppliers. That’s working in your favour.”

Ramesh smirked. “So finally, someone else is funding my business.”

Correct.

Cash Conversion Cycle - The True Pain Point

Then came the full picture.

The accountant drew a simple timeline:

  • Day 0: Raw material arrives
  • Day 1–90: It sits in inventory
  • Day 91: Product is sold
  • Day 91–167: Customer takes 76 more days to pay

So Ramesh’s money returns on Day 167. But when did it leave?

Not Day 0. He only pays the supplier on Day 75.

So his own money is stuck from Day 75 to Day 167 - exactly 92 days.

That’s the Cash Conversion Cycle (CCC) - the number of days your own cash is trapped inside the system.

Not from sale to sale. From money going out of your hand to money coming back in.

Working Capital Days - The Cash You Need Before You Even Open the Shop

One afternoon, Ramesh sat with his accountant, looking at how much cash was left.

The accountant said softly,
“Sir, your working capital days are 90.”

Ramesh looked up.
“What is that?”

The accountant didn’t pull out a spreadsheet. He just said:

“Sir, think of it like this - you run a business that sells medicine every day.”

“But today, even before you sell anything, your money is already busy somewhere.”

Ramesh asked, “Busy where?”

The accountant said:

“Some money is used to buy materials and make stock - it’s lying in your godown.”
“Some money is still with customers - you gave them goods, but they haven’t paid yet.”
“And yes, some money you still have to pay to your suppliers - that will go later.”

Ramesh listened quietly.

Then the accountant said:

“Now if I take all that - your stock money, customer money, and supplier dues - and do some maths, it tells me this:
To keep this business running, without even growing, you need to block money equal to 90 days of sales.”

“That’s working capital days.”

Ramesh thought for a second.
“So I need three months of sales money already locked - just to stay normal?”

The accountant nodded.
“Yes, sir. Even if you don’t take one extra order tomorrow - this much money is always stuck inside the machine.”

And that’s when it made sense.

He didn’t need any chart.
He just wanted to know how deep the cash pit really was.

The accountant saw he was finally interested.

So he said, “Sir, let me also show you how we calculate it - no formulas, just the logic.”

He picked up a notepad and wrote:

  • You have ₹30 crore of stock lying in the factory and warehouse
  • You have ₹45 crore worth of customer bills still unpaid
  • You still owe ₹25 crore to vendors

“So the money that’s fully stuck is ₹30 + ₹45 – ₹25 = ₹50 crore.”

Then he said:

“Now we divide that ₹50 crore by your average daily sales.”

Ramesh nodded slowly.

“If you sell ₹55 crore a month, that’s around ₹1.83 crore per day.”

So:

₹50 crore ÷ ₹1.83 crore/day ≈ 27 working capital days

Ramesh was quiet.
Then he said,
“So I always need ₹50 crore parked, just to keep the engine running?”

The accountant nodded again.

“Yes. That money never goes out. It just keeps going round and round - always inside.”

That was it.

Now, Ramesh didn’t just understand cash delay.

He understood cash depth.