Translate inventory days into an average balance, then return to dates
Inventory days can estimate an average balance, but it cannot identify the lowest cash date. Keep annual cost of goods sold and period-day basis explicit, then map order, supplier payment, sale and customer receipt separately.
| Case | Intermediate calculation | Estimated average balance |
|---|---|---|
| 60 days | 365,000 ÷ 365 × 60 | 60,000 CU |
| 45 days | 365,000 ÷ 365 × 45 | 45,000 CU |
| Difference | 60,000 − 45,000 | 15,000 CU |
Set the decision boundary before using the numbers
Inputs and records to align
- One SKU group, purchase order or buying cycle and one planning horizon. (not complete)
- Opening usable inventory, committed inbound units and reserved stock. (not complete)
- Deposit, balance, freight, duty and other dated cash outflows from current documents. (not complete)
- Expected stock-available date rather than order date. (not complete)
- Lower, base and higher sell-through scenarios with no claim of probability. (not complete)
- Channel settlement delays, refunds and other dated cash adjustments. (not complete)
Build one transparent decision model
Dated closing cash = opening cash + cumulative customer receipts - cumulative inventory and operating payments; funding gap = max(0, required cash floor - minimum dated closing cash)
- customer receipts
- Cash available after the channel settlement timing (CU by date) — settlement records or labelled scenario
- inventory payments
- Deposits, balances, freight and other included stock cash events (CU by date) — purchase orders, invoices and contracts
- required cash floor
- User-entered operating cash constraint, not a Margin101 benchmark (CU) — business policy or scenario
The minimum occurs on a date, not in a period total. Keep accounting margin and inventory recovery separate from the cash timing calculation.
- Reconcile opening usable stock and open commitments.
- Enter every inventory cash event on its contractual date.
- Enter stock-available and channel-settlement dates separately.
- Model lower, base and higher sell-through receipt paths.
- Find the earliest and deepest cash shortfall against the declared floor.
- Compare order size, terms, launch timing, preorder or funding responses without hiding their risks.
Worked example: expose the pre-settlement trough
Invented timeline: 20,000 opening cash, 14,000 deposit, 8,000 balance and freight, then 10,000 customer receipts; required cash floor is 5,000.
| Line | Calculation | CU |
|---|---|---|
| After deposit | 20,000 - 14,000 | 6,000 |
| After balance and freight | 6,000 - 8,000 | (2,000) |
| After customer receipts | -2,000 + 10,000 | 8,000 |
| Peak funding gap to 5,000 floor | 5,000 - (-2,000) | 7,000 |
| Case | Changed input | Result | Decision signal |
|---|---|---|---|
| Later settlement | Receipts move one period later | 7,000 gap | Secure timing response |
| Smaller order | Inventory payments lower by 5,000 | 2,000 gap | Compare stockout risk |
| Base | Entered purchase and receipt dates | 7,000 gap | Plan cash source or order change |
Review the operational trade-offs before acting
- Using purchase order total without payment dates.
- Treating arrival, availability, sale and settlement as one date.
- Using gross sales rather than cash receipts.
- Calling inventory cash committed a final economic loss.
- Assuming a base sell-through case is a forecast.
- Ignoring refunds, duties, freight or channel holds in the dated cash view.
Decision questions
- Why can a profitable product create a cash shortfall?
- Inventory and fulfilment cash can leave before the sale and settlement receipt. Margin and cash timing answer different questions.
- Should I reduce the purchase order?
- Compare the funding benefit with stockout, supplier, freight and service risks; the cash model does not choose the order quantity for you.
Sources and methodology
- Inventory Funding Gap methodology — Margin101: Dated commitment, payment, stock and receipt mechanics.
- Open-to-Buy methodology — Margin101: Buying-budget and inventory commitment boundaries.
Test the editable scenario
- Inventory Funding Gap Planner
Identify the peak cash funding gap between inventory payments and customer collections
- Open-to-buy Planner
Set a buying budget from planned sales, markdowns and stock targets
- Preorder Cash & Profitability Planner
Test preorder funding gap and final contribution