Inventory ties up cash twice
First you pay the supplier, and then you wait for the customer. Between those two events the money is in the stock room, doing nothing but waiting. A business with fast turns, like a convenience store, feels this lightly. A furniture shop or a parts distributor with slower turns feels it heavily, because a larger share of every month's cash is stuck on shelves.
The other side of the problem is the opportunity to buy well. Suppliers often offer better pricing on volume, or hold a limited run of stock only for a short time. If you cannot move quickly, you buy small and pay more per unit.
A worked example, for illustration only
Suppose a gift retailer in California wants to stock up before a busy selling season. The owner estimates a $60,000 order will arrive in time to sell through. If the shop has only $20,000 free, it can order a third of the stock and miss the rest of the season's sales, or find the missing $40,000.
The decision is simple to frame: how much extra revenue does the additional stock produce, and when does it come back? If it will sell within the season, bridging the purchase may be worth considering. If the extra stock may sit until next year, ordering less is safer. These numbers are illustrative and not our terms or typical outcomes.
Signs that an inventory purchase is a good use of working capital
- The product has proven demand, not a hope.
- You can name when the stock will sell through.
- The supplier discount or availability window is time-limited.
- Your existing cash needs to stay free for payroll and rent.
Signs to slow down
- Previous stock is still unsold.
- The purchase is justified mainly by a hunch about a trend.
- You would have to skip a payroll to afford the next reorder.
- Storage costs or spoilage risk would eat the discount.
Slow-moving goods are the main risk in inventory buying. A markdown to clear old stock can sometimes release more cash than buying new.
Cash conversion in plain terms
The number that decides how much inventory funding you need is the time between paying your supplier and collecting from your customer. Shorten it by negotiating supplier terms, selling faster or collecting sooner, and the amount you must fund shrinks. Lengthen it by buying slow movers, and it grows. Track it monthly and it tells you when stock is becoming a burden before the bank balance does.
How to apply
Collect three months of business bank statements and a supplier quote if you have one. The application takes about five minutes, uses a soft credit pull, and considers FICO 500 and above. No tax returns required, and funding can arrive in as little as 24 hours. Apply here.