Plain definition
The operating cycle is the time from acquiring inventory or inputs to collecting cash from the related sale. It commonly combines inventory days and receivables days; the cash conversion cycle also subtracts supplier payment days.
Illustrative example
A wholesaler holds stock for 35 days and collects customers 25 days after sale, creating a 60-day operating cycle. A sales campaign promises customers 45-day terms. Before accepting it, management asks whether the extra 20 collection days will coincide with inventory purchases and whether supplier credit covers the gap.
Why it matters
The cycle exposes the length of time operating cash is committed. It does not itself state the cash amount or replace a dated forecast.
Practical consequence
Measure each component on a consistent basis, identify the owner of stock and collections, and translate proposed day changes into expected balances and payment dates.
Try your own numbers
Measure cash tied up in receivables and inventory, less supplier credit, then test a target cycle.
Working-capital cycle