Cross-border selling · Lead time + transit + payout − terms
Inventory cash cycle
The cash cycle is the gap between paying a supplier and receiving the marketplace payout. It decides how much cash a reorder really needs.
Key facts
| Formula | Lead time + transit + payout delay − supplier payment terms |
|---|---|
| Inventory to hold | Daily sales × (lead time + transit + safety stock days) |
| Cash tied | Inventory units × landed unit cost |
| Reorder point | The same stock-days calculation, used as the trigger |
| Leverage | Payment terms and payout frequency move the cycle more than a small price change |
| Double-sales test | The extra inventory cash needed is roughly the current inventory cash |
The cycle is the business model
A product with a 40% margin and a 90-day cash cycle can still run out of cash while growing. The supplier is paid before the marketplace payout arrives, and the inventory in transit and in the fulfilment centre is cash that cannot be used elsewhere. The cycle, not the margin alone, sets the ceiling on growth.
Calculate the cycle from the supplier payment date to the payout date. Then calculate the inventory needed to cover lead time, transit and safety stock. The sum is the working capital the product demands per unit of sales.
Run the double-sales scenario
Growth doubles the inventory requirement before it doubles the profit. If sales double, the cash tied in stock roughly doubles too, and the payout float grows with the higher sales. A seller who plans for the profit but not the working capital hits a cash wall at the worst moment.
Use supplier terms as a lever: a deposit instead of full prepayment, or net-30 on the balance, can shorten the cycle more than a small price increase. Model the terms explicitly rather than assuming the supplier will not negotiate.
Frequently asked questions
What is a good inventory cash cycle?
There is no universal number. Compare the cycle with the contribution margin and the available cash. A shorter cycle supports faster growth; a long cycle needs more working capital per unit sold.
How do I calculate the reorder point?
Daily sales multiplied by the days of cover you need: supplier lead time plus transit plus safety stock. The calculator returns the same number used for the inventory requirement.
Does a supplier deposit help?
A deposit reduces the cash paid before production, but the balance is still due before shipment. Model the actual payment schedule; a deposit alone does not remove the cycle.
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