Turn the symptom into a testable decision.
Revenue can grow while cash tightens because profit and timing are different systems. The diagnosis must reconcile the cash movement before proposing collections or inventory cuts. The sequence below is designed to preserve definitions, expose alternative explanations and lead to a decision that can be validated.
- Reconcile before explainingTie invoices, receipts, inventory movements and supplier payments to the general ledger. Unreconciled extracts cannot support a cash decision.
- Build the cash bridgeSeparate earnings, working-capital movement, capital expenditure, debt, tax and one-offs.
- Decompose by driverAnalyze DSO by invoice cohort and customer; inventory by SKU state; DPO by supplier terms and payment behavior.
- Distinguish growth from leakageCalculate how much cash use follows expected volume growth and how much comes from aging, delay, disputes or excess stock.
- Prioritize recoverable cashEstimate amount, probability, time, operating cost and commercial risk for each intervention.
Ask for the minimum data that can change the answer.
Begin with read-only access and a field-level purpose. Reconcile samples before scaling extraction, preserve event time and source provenance, and record missingness rather than silently filling it.
Validate the claim before changing the operation.
Prove a cash release without moving the problem elsewhere
Take a closed historical period, reproduce DSO, DIO, DPO and operating cash, then apply one bounded rule—for example dispute triage for a named invoice cohort or a reorder adjustment for an aging SKU class. Estimate the cash timing change and back-test false positives. Guardrails should include revenue retention, fill rate, supplier continuity, margin and accounting control.
What makes the diagnosis look right and still fail.
- Treating EBITDA as cashAccrual earnings do not show when customers pay, when stock converts or when suppliers are paid.
- Using one company-wide DSOMix, milestone billing, disputed invoices and new growth can move the average for different reasons.
- Extending payables blindlyA DPO gain can damage supply continuity or destroy early-pay economics.
- Counting theoretical inventoryStock may be committed, obsolete, in transit or unavailable despite its balance-sheet value.
- Promising the full gross opportunityCash opportunities require probability, timing, tax and execution adjustments.
Primary and official references
These sources define the measurement, control or operating context. They do not replace validation on the company’s own data.
Questions enterprise teams ask first.
What is the cash conversion cycle?
A common form is days inventory outstanding plus days sales outstanding minus days payables outstanding. The exact calculation and period basis must be stated.
Why can DSO rise during growth?
New customers, deal mix and invoice timing can change the cohort. Compare like contracts and separate normal growth investment from collection deterioration.
How should disputed invoices be handled?
Create a separate state with reason, owner and aging. Combining disputes with ordinary overdue invoices hides the process bottleneck.
Can this diagnosis be completed from the ledger alone?
No. The ledger proves totals; operational records explain the timing and identify an action.