Quick answer
Stock ties up cash from the moment you pay for it until it sells and the customer pays. Measuring stock days and sell-through by product shows where cash is trapped. Ordering smaller and more often, setting reorder points, clearing slow movers and negotiating supplier terms release cash. Funding suits seasonal or growth-driven stock needs when matched to how quickly the stock sells.
Key points
- Every item on the shelf is cash you have already spent.
- Measure stock days and sell-through by product.
- Clear slow movers; dead stock costs money to hold.
- Fund stock on terms that match sell-through.
For retailers, wholesalers, online stores and manufacturers, stock is often the largest use of cash in the business. It is also the easiest place for cash to hide, often in plain sight. Every carton in the storeroom is money that has already left your account and will not return until it sells and the customer pays. Managing stock well is one of the most powerful cash flow levers a product business has, and most of the improvements cost nothing but attention.
How stock affects cash
When you buy stock, cash leaves the account immediately or within your supplier’s terms. The stock then sits until it sells. If you sell on terms to business customers, there is a further wait before payment. The longer each stage takes, the more cash is tied up. Growth adds more: a bigger range or more customers means more stock on hand at any time. Our guide to the working capital cycle shows how stock fits into the full picture.
Measure stock days
Stock days estimate how long stock sits before selling. Calculate it as average stock value divided by annual cost of sales, multiplied by 365. If you hold $150k of stock and your annual cost of sales is $900k, stock days are about 61. That means roughly two months of purchases are sitting on your shelves at any time. The working capital calculator does this alongside debtor and creditor days.
Measure sell-through by product
Overall stock days hide important detail. Some products sell in days; others sit for months. Run a report showing, for each product, units sold over recent months and units on hand. Divide units on hand by average monthly sales to see how many months of stock you hold for each item. This shows exactly where cash is trapped and which products deserve attention first.
Clear slow movers
Products with many months of stock and few sales are costing you money: the cash tied up, storage space, insurance, the risk of damage or obsolescence and, if funded, the finance cost. Options include promotions, bundles with fast sellers, clearance sales, returning to suppliers where agreements allow, or selling to clearance buyers. Turning dead stock into cash, even at a discount, usually beats holding it.
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Order smarter
- Set reorder points based on sales rate and supplier lead time, so you reorder before running out but not too early.
- Order smaller, more often where suppliers allow, even if unit costs rise slightly.
- Use sales data, not instinct, to decide quantities.
- Plan seasonal orders carefully, based on last year’s sales by product, adjusted for trends.
- Keep a little in reserve for reorders rather than buying the whole season upfront.
Use supplier terms
Supplier credit is free working capital. Longer terms mean stock may sell before you have to pay for it. Many suppliers offer better terms to customers who order consistently and pay reliably. Our guide on negotiating supplier terms explains how to ask.
Bulk discounts: do the maths
Suppliers often offer lower prices for larger orders. Before accepting, compare the saving in dollars with the cost of holding the extra stock until it sells, including any funding cost. If the extra stock will take many months to sell, the saving can disappear. See supplier bulk discounts.
When to fund stock
Funding stock makes sense when it is clearly going to sell and the term matches the sell-through: seasonal stock repaid during the season, a new range with tested demand, or a larger order for a confirmed customer. A short-term loan suits a single order; a line of credit suits regular restocking. See buying stock and inventory.
Imported stock
Importing adds long lead times, deposits paid months ahead, freight and customs costs, and currency movements. Plan orders well ahead, include landed costs in your pricing and allow for delays. Funding for imported stock should cover the whole journey from deposit to sale.
Stocktakes as a cash tool
A regular stocktake is not just an accounting exercise. It shows what you actually have, reveals shrinkage and damage, and highlights slow movers. Many businesses do one at the end of the financial year; doing a quick count of high-value lines more often keeps cash visible.
Stock and your lender
Lenders assessing a product business look for steady sales flowing through the account and supplier payments that match. Large, irregular stock purchases without matching sales can raise questions. Explaining your buying pattern, such as seasonal pre-orders, helps a lender understand your statements.
Systems that help
Inventory management software, even a simple one integrated with your point of sale or online store, makes all of this far easier. It tracks stock levels, sales by product and reorder points automatically, and produces the sell-through reports that show where cash is tied up. For a growing product business, investing in a decent system often pays for itself quickly through less dead stock and fewer missed sales.
Range decisions
Every product in your range has a cash cost. A wide range can attract customers, but each extra line adds stock you must hold. Review your range at least twice a year. Identify the products that deliver most of your sales and margin, and the long tail that sells rarely. Trimming the tail, or moving it to order-on-demand where suppliers allow, can release significant cash without hurting sales. New lines should earn their place by selling through within a set period, or be cleared.
Stock for service businesses
Service businesses hold stock too: parts for mechanics, consumables for clinics and salons, materials for trades. The same principles apply on a smaller scale. Keep common, fast-moving items in stock, order specialised items as needed, and review what sits on the shelf. A van or storeroom full of rarely used parts is cash that could be paying wages or reducing debt.
An illustrative example
An illustrative gift shop found that a third of its stock value sat in products that had not sold in six months. It ran a clearance sale, bundled slow lines with popular items and moved to monthly reorders based on a simple sell-through report. Within a quarter, stock days fell from about 95 to 60, releasing enough cash to fund its Christmas order without borrowing.
Free up your cash
If stock is tying up cash you need, or you need funding for a busy season, tell us about your range and sales. There is no credit check to enquire, your details are not passed around to a crowd of lenders, and a real person reads every enquiry. Apply now.
Frequently asked questions
What are stock days?
An estimate of how long stock sits before it sells, calculated as average stock value divided by annual cost of sales, multiplied by 365.
How do I identify slow-moving stock?
Run a report showing units sold per product over recent months against units on hand. Items with months of stock and few sales are slow movers.
Should I buy in bulk to save money?
Only if the saving outweighs the cost of holding the extra stock, including the funding cost and the risk it does not sell.
Can I get funding for stock?
Yes. Short-term loans and lines of credit are commonly used for stock, ideally matched to how quickly the stock sells.
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