Working capital and inventory
Working capital is the money the business needs to operate between paying for work and being paid for it. In a growing company it is where the cash goes. Receivables grow with sales, inventory grows with range and caution, and payables are paid early because nobody set terms. We measure the cash conversion cycle, find the days that can be removed from each part of it and build the routines that keep them removed, so growth funds itself rather than the line of credit.
What you leave with
A shorter cash conversion cycle, inventory sized to real demand and a working capital position that supports growth and a future sale.
Who it is for
- Distributors, manufacturers and retailers in BC with cash tied up on the shelves
- Contractors and service companies with receivables that grow faster than revenue
- Owners whose line of credit is permanently drawn
What we deliver
- A cash conversion cycle analysis: days sales outstanding, days inventory outstanding and days payable outstanding, with a trend
- A receivables plan: terms, deposits, invoicing timing and a collections routine
- An inventory review: turns by product, dead and slow stock, reorder points and safety stock levels
- A payables plan: supplier terms negotiated and payment timing matched to inflows
- A working capital target and a monthly tracker
- Changes configured in your accounting and inventory systems
How it runs
01Measure
We calculate the cycle from your actual data and show which of the three parts has drifted most.
02Plan
We set targets for each part and list the specific changes that reach them.
03Change
We implement the terms, the invoicing, the reorder rules and the supplier agreements, with your team.
04Track
A monthly working capital line in your reporting keeps the cycle from drifting back.
Engagement and fees
A Workshop of two to four weeks at $30K to $80K for the analysis, the targets and the receivables and payables changes. A 90-Day Sprint at $80K to $250K where inventory systems, reorder rules and supplier terms are rebuilt as well. Every engagement is scoped after a call and confirmed in writing. See consultations and fees.
The cash conversion cycle
The cycle is the number of days between paying for inputs and collecting from customers. It is days of inventory plus days of receivables minus days of payables. A company that holds stock for sixty days, collects in forty-five and pays suppliers in thirty has a cycle of seventy-five days, and every dollar of growth needs seventy-five days of funding before it comes back.
Each part can be shortened. Receivables through terms, deposits and collections. Inventory through better reorder rules and clearing what does not move. Payables through negotiated terms and payment timing. Shortening the cycle by a few weeks releases cash that is already yours, without a new sale or a new loan.
Inventory: what to hold and what to clear
Inventory is bought with cash and sits on a shelf as hope. Most product businesses we meet hold too much of what does not sell and run out of what does. The review ranks every product by turns and by margin, flags the dead and slow stock and sets reorder points and safety stock from actual demand and lead times rather than from a feeling.
Clearing dead stock is painful because it was paid for, but the cash it releases and the space and attention it frees are worth more than the loss on the write-down. Your CPA advises on how the write-down is treated. We make sure it does not happen again by building the reorder rules into the system you use.
Receivables and payables, treated as policy
Terms are a policy decision, not a courtesy. Deposits on orders, invoicing on delivery, card or pre-authorised debit for small accounts and a collections sequence that starts before the due date can take weeks off receivables. Large customers who want longer terms can have them, at a price that is visible in the margin.
On the payables side, most suppliers have never been asked for terms, and most will give them to a customer who pays reliably. Paying on the due date rather than on receipt is free money. We negotiate with you, match payment runs to your inflow pattern and set up the approvals so that the policy holds when the person who set it is on holiday.
- Aged receivables and aged payables, and inventory by product with cost and last sale date
- Customer and supplier terms as they are actually applied
- Your line of credit agreement and its usage over the last year
Industries where we run this most
Questions about this service
How do we know how much inventory to hold?
From demand and lead time, by product. A reorder point is the demand during the supplier's lead time plus a safety margin for variability. We calculate both from your sales and purchasing history, set them in your system and review them quarterly. The answer is different for every product.
Will shortening our terms lose customers?
Some, and usually the ones who pay late and cost the most to serve. Most customers accept clear terms applied consistently, especially with deposits and progress billing on larger work. The numbers show who is affected before you act.
Our line of credit is always drawn. Is that a problem?
It means the line is funding permanent working capital, which is what a term loan is for, and it leaves nothing for a real emergency. Shortening the cycle usually brings the line back to its purpose. Where the structure is wrong, we prepare the conversation with your lender.
Does this affect a future sale of the business?
Directly. Buyers set a working capital target in the deal, and a business that needs less working capital to run is worth more and closes with fewer adjustments. The exit-ready work builds on the cycle improvements made here.
Start with a finance review.
Ninety minutes with Ali on your cash, margin and pricing. You leave with the four numbers to watch and the two or three moves that change them, whether or not we work together.