Working capital optimization starts with a practical question: when does money leave your business, and when will it return? For an inventory-owning consumer brand, review the purchase plan, customer collections and supplier payment calendar together. This applies whether you sell only through DTC or also through other channels.
The goal is a workable cash plan with clear responsibilities. A smaller inventory balance or a later payment date is useful only if the operating tradeoffs make sense for your business.
Separate working capital from available cash
Working capital equals current assets minus current liabilities. Inventory and receivables are current assets, but they are not the same as money available in the bank. A positive working-capital balance can coexist with a cash shortage if stock sells slowly or customers have not paid. BDC explains the working-capital calculation and liquidity distinction.
For your review, keep three questions separate:
- Balance sheet: what do we own and owe in the near term?
- Operating cycle: how long does inventory and customer collection take relative to supplier payments?
- Cash forecast: on which dates can we meet our actual commitments?
Use the cash conversion cycle as a diagnostic
The cash conversion cycle combines average inventory days and receivable days, then subtracts average payable days. It describes operating cash timing; it does not calculate every cash requirement of the business. BDC’s calculation guide explains the components.
Cash conversion cycle = inventory days + receivable days − payable days.
For a deliberately simplified hypothetical brand, 60 inventory days + 20 receivable days − 30 payable days gives a 50-day cycle. Those assumptions are an illustration, not a client result or industry benchmark.
Use consistent reporting periods and average balances when calculating the components. Receivable days uses credit sales; inventory and payable days commonly use cost of goods sold in this calculation. A change in the combined number is a prompt to investigate the underlying balances and terms, not a guaranteed cash saving.
Review three operating decisions
Start with these questions and record the evidence before changing a process. BDC’s cash-management guidance supports reviewing collections, stock and supplier terms together.
| Area | Bring to the review | Decision to investigate |
|---|---|---|
| Inventory | Stock by SKU, recent sales, open orders and replenishment assumptions | Which purchases can be resized or rescheduled while protecting availability? |
| Receivables | Invoice aging, due dates, disputes and collection notes | Which invoices need correction, confirmation or a named follow-up owner? |
| Payables | Agreed terms, discounts, due dates and planned payment dates | Are payments following the terms, and is a proposed change worth its cost? |
Issue clear invoices promptly, review aging regularly and examine slow-moving stock. Ask suppliers about changes to terms rather than assuming permission to pay late. Evaluate discounts and operational consequences before choosing a payment date. There is no fixed percentage of cash that these actions will release.
Put the dates into a cash forecast
For each forecast period, start with opening cash, add expected receipts and subtract planned payments. The result becomes the next period’s opening cash. The Australian government’s cash-flow template guidance describes this structure and the importance of identifying estimates.
Choose a weekly view when monthly totals would hide an important payment date. Include supplier deposits, payroll, overhead, taxes, debt payments and other relevant commitments. Financing should appear as its own assumed receipt, with its timing and conditions made explicit. Compare the forecast with actual cash movements and investigate differences. Business Victoria’s forecasting guide covers payment timing, nonoperating outflows and forecast-versus-actual review.
Illustrative timing example
Assume a brand starts with $100,000 of available cash. The figures below are invented for this example, expressed in thousands of dollars. Payments include all assumed outflows; there are no other receipts, fees or financing flows in the example.
| Cash item ($000) | Week 1 | Week 2 | Week 3 | Week 4 |
|---|---|---|---|---|
| Opening cash | 100 | 70 | 65 | 60 |
| Receipts | 50 | 60 | 55 | 65 |
| Payments | 80 | 65 | 60 | 70 |
| Closing cash | 70 | 65 | 60 | 55 |
Now assume a supplier agrees to move a $20,000 payment from week 2 to week 4, with no fee or other change. Weekly closing cash becomes $70,000, $85,000, $80,000 and $55,000. Cash is $20,000 higher in weeks 2 and 3, but the final balance is unchanged. The invoice still has to be paid; this is a timing change, not new profit or a permanent saving.
Estimate runway from the cash movements
Use the forecast to identify the first period when available cash would fall below a reserve you choose for your business. Extend the forecast if the decision reaches beyond its current horizon. Test slower collections, different purchase timing and delayed sales as separate scenarios.
Do not automatically subtract the entire working-capital balance from cash and divide by monthly burn. If a cash forecast already includes the relevant payments and collections, adding the same outflows again double-counts them. In the example above, subtracting the rescheduled $20,000 invoice again would count a payment already included in week 4.
Choose one next action
Assign an owner, an expected date and a supporting assumption to the next collection, inventory or supplier action. Check what actually happened before treating the expected cash benefit as available to spend.
For context on the broader finance function, see CFO support for consumer brands. To discuss one inventory or cash-planning decision, request a free 30-minute financial assessment. The initial conversation can help identify priorities and a next step; it does not promise a particular cash release or a complete model build.