For fast-growth businesses—especially in retail and ecommerce—the balance between inventory and cash flow is crucial to success. The wrong decisions can easily sink a business, but the right ones can unleash resilience and prosperity for the long term.

The core of the challenge is straightforward: Supply chains are complex and require investments in supplies and infrastructure and a great deal of working capital. When demand evolves rapidly, any misalignment between inventory and cash can compound problems.

By understanding how to manage your inventory and cash flow in relation to each other, you help strengthen both, making it easier to capitalize on growth opportunities and always stay in stock.

Opposing Forces in Supply Chain

A natural tension exists between the elements of a supply chain. Consider how each of these forces and how they interrelate impacts on your planning, operations, and finances.

At the top of the supply chain, factories don’t want to provide products without getting paid, but importers may not want to tie up cash for months. Customers want products in stock and fast, inexpensive delivery, but many companies lack reliable data, infrastructure and resources to create better workflows to serve them.

This creates two pressing questions:

• How can you match supply to demand?
• How can you best use your available cash?

Work with each factor to identify the specific obstacles your company may face, so that you can create strategies to resolve them.

Solving Inventory Challenges

Among inventory challenges, a few common ones crop up for fast-growth businesses.

The universal problem is that inventory ties up cash. Then, depending on your business, you may find seasonality means SKUs have diminishing value over time or inventory isn’t distributed close enough to where consumer demand exists.

You may have expanded your product array in the wrong direction, limiting supply for what your customers really want and leaving you with inventory you have to pay to store.

Moving forward, you can commit to a narrower SKU array, keeping product introductions simple and adding complexity as you gain data.

More pointed supply and demand forecasting can help, too. Look at the cross-functional areas of your business to identify inventory-related cash bleed or opportunities:

• Does your demand forecast match your committed supply of product?
• Can you see all of your inventory liabilities and sales opportunities at a glance?
• How can you tell if you’ll be in allocation or overstocked?
• What do you do to correct misguided decisions?

If you’re not there yet, you can build towards these frameworks.

Create a sales and marketing forecast and improve it over time. Work with operations teams to explore data on finished goods, inventory in transit, and distribution models.

As you begin to improve your inventory management, you can begin to work more effectively to smooth the peaks and valleys of your cash flow upwards.

Working Capital

Managing cash flow is very closely tied to inventory management, but it presents its own pitfalls and opportunities, too.

The inventory process creates financial gaps you need to fill, but so do activities related to origin and destination, transportation, and payment timing and processes.

These matters can be further complicated by the scope of your business, including the number of SKUs and suppliers you have or your logistics modal mixes. As a result, cash can run thin at certain points of your product cycles, even with strong inventory management processes in place.

These lean points may occur exactly when you most need the cash for growth—to bulk up inventory when demand is high, to further leverage successful marketing campaigns, or to hire staff for operational resilience and overall company expansion.

A practical approach comprises impactful methods of freeing cash, increasing its flow, or injecting non-dilutive financing for even faster growth:

• Speed order-to-cash cycle. Look for ways to remove days from origin to destination in order to reduce working capital needs.
• Manage payment terms. Negotiate favorable payment terms with suppliers, logistics providers, retailers and other partners. Adjust for seasonality by planning at least six months in advance of busy times.
• Gain access to capital. Redeploy cash towards high-return activities, like hiring, marketing, and product development, or to extend your runway and avoid dilutive fundraising rounds.
• Grow your business. Continue to make incremental supply chain improvements and rely on financing as you scale.

Closing Gaps with Capital

Trade financing can help reduce working capital gaps by solving the problem of lean moments in your supply chain.

For example, during a period of fast growth, you may bring on new suppliers, but new relationships don’t always include the most favorable terms upfront.

That’s because, while investing in additional inventory creates a working capital gap for you, your company is a risk to your new supplier. Until you pay, your company represents a working capital gap for them.

Close the gaps for your company and your supplier by paying upfront and you can negotiate better terms that allow you to capitalize on the growth opportunity that led you to the new relationship in the first place.

On the financing side, negotiate your payment terms just as you did with your supplier. Look at your supply chain’s opposing factors and where your capital gets stuck to create repayment plans that serve your needs.

With the balance between inventory and cash flow restored, you can create explosive growth and resilience for the future.

Get the Funding You Need to Capitalize on Opportunities

Fast forward your supply chain with Flexport Capital. Cover your supply chain costs with trade financing from industry experts, so you can invest everything you’ve got in growth. With a simple application process, an average of two-week turnarounds, and low upfront costs–you can expand your inventory, plan your next product launch, and capitalize on every opportunity that comes your way.

Plan, procure and push ahead of your competition. Flexport provides financing to cover the cost of goods and shipping so you can redirect working capital where your business needs it. Flexport Capital is unsecured, non-dilutive, and can advance up to 80% of your Commercial Invoice. Extend payment terms for up to 120 days. Start executing your growth strategy with a speedier supply chain and a shorter to-do list with Flexport at your side.

Learn more about Flexport Capital now so you can invest in growth, not logistics.