If a firm takes actions that reduce its days sales outstanding (DSO), then, other things held constant, this will lengthen its cash conversion cycle (CCC).

Question

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The cash conversion cycle (CCC) is the length of time it takes for a company to convert its investments in inventory and other resources into cash flows from sales. It is calculated as the sum of the company's days inventory outstanding (DIO), days sales outstanding (DSO), and days payable outstanding (DPO).

Reducing the DSO means that the company is collecting its outstanding receivables more quickly, which should shorten the CCC as cash will be received sooner. Therefore, if a firm takes actions that reduce its DSO, other things held constant, this will shorten its cash conversion cycle (CCC), not lengthen it.

If a Firm Takes Actions That Reduce Its Days Sales