Strong sales hide cash sitting in stock that is not moving
Identify slow inventory cash commitments separately from growing turnover without assuming return or resale rights.
Corporate Recovery Partners
01 / 06
The warehouse is full and the account is tight
A hypothetical wholesaler has rising sales but keeps purchasing the same broad range of stock. Some lines move quickly while others remain untouched. The sales total does not reveal how much cash is tied up in the slower items. Review purchasing and usage at a practical level before assuming the next busy month will convert every shelf into cash.
Identify stock on hand, orders already placed and items allocated to current customer work. Check quantities and condition against the records. Keep customer-owned goods and other parties' property separate. A stock report can contain items that are obsolete, damaged or unavailable for ordinary sale, so ask the accountant about any valuation concerns instead of treating every recorded dollar as recoverable cash.
Business.gov.au's cash-flow guidance covers expected money in and out and labelling estimates. Put committed supplier payments on the timeline and use supported sales assumptions for receipts. Do not assume a slow item will sell this week merely because it needs to. Record any planned discount or return as a proposal until the relevant decision or agreement is confirmed.
In the hypothetical example, the business is about to reorder a line that already has several months of stock at its recent usage rate. Check whether future orders genuinely justify the purchase and whether the existing stock can meet them. Avoid cancelling an order without reviewing its terms. A smaller order may help cash, but supply reliability and contractual commitments also matter.
Discuss suitable stock with sales and operations before deciding on discounts, alternative uses or a return request. Verify supplier acceptance and any costs before putting return proceeds into the forecast. Consider the effect of a clearance on margin and customer commitments. Selling an item below its recorded value may release cash while creating a separate loss that needs recognition.
Give the person ordering stock current usage, existing commitments and approved purchasing limits. Review slow lines regularly with the relevant staff. CRP can help assess the wider cash position if purchasing pressure forms part of a recurring shortfall. The useful measure is not simply more sales, but whether the cash committed to stock matches the business's actual operating needs.
