A business can budget carefully for a large stock order and still underestimate how much cash it will take to get that stock ready to sell.
The supplier invoice is often the obvious cost.
What follows can be just as important.
Freight, transport, warehousing, unloading, handling, packaging and final delivery costs can all arrive before the inventory has generated revenue.
For a Wetherill Park business carrying larger volumes of stock, those additional costs can turn what looked like a well-funded purchase into a working capital squeeze.
The problem is not necessarily the price of the stock.
It is the amount of cash required to complete the entire journey from supplier to customer.
The purchase price is rarely the full cash requirement
Imagine a business places a $140,000 inventory order.
The owner has planned for the supplier payment and believes the purchase is comfortably funded.
Then the related costs begin arriving.
There may be:
inbound freight
pallet or handling charges
unloading costs
temporary storage
additional warehouse space
packaging
local transport
courier or distribution costs
additional staff to process the stock
Another $20,000 or $30,000 can disappear surprisingly quickly.
If the business has already used most of its available cash for the inventory itself, those follow-on costs can put pressure on the operating account.
Stock does not become cash when it reaches the warehouse
Another mistake is assuming that once inventory has arrived, the funding cycle is effectively finished.
It is not.
Stock sitting in a warehouse is still money tied up.
It only starts converting back into cash as customers purchase it and, where applicable, pay their invoices.
That means a business can have a warehouse full of valuable inventory and still struggle to meet payroll or supplier obligations.
The accounting value of the stock does not pay today’s bills.
Liquidity does.
Larger orders can create larger logistics costs at exactly the wrong time
A business may deliberately purchase more stock to secure:
better supplier pricing
sufficient inventory for larger customer orders
protection against supply delays
additional stock ahead of a stronger trading period
more reliable availability for regular customers
Commercially, that may make sense.
But the larger order can increase costs beyond the supplier payment.
More inventory may require more pallets, more storage space, more freight movements and more labour.
If those costs were not included in the original funding plan, the business can end up using cash that had been reserved for other purposes.
Freight is often paid before the customer generates any cash
The timing can be particularly awkward.
The supplier is paid first.
Transport providers are paid next.
The stock arrives.
The warehouse team processes it.
Only then can sales begin.
If the business sells to other businesses on 30-day terms, the wait may continue even after the goods have left the warehouse.
A stock order paid for in one month may therefore not fully convert back into available cash for several months.
The longer that cycle becomes, the more working capital the business needs to carry it.
Calculate the landed or delivered cost, not just the invoice value
Before committing to a major order, it can help to calculate the cost of getting the inventory into saleable condition.
That might include:
Supplier cost: $120,000
Freight and transport: $9,000
Warehousing and handling: $5,000
Packaging and fulfilment: $4,000
Additional labour: $6,000
Total cash requirement: $144,000
A business that planned only around the $120,000 supplier invoice is already $24,000 short of the true requirement.
That difference can be enough to affect payroll, tax payments or another supplier account.
A profitable order can still leave the business temporarily short
Suppose that $144,000 cost ultimately produces $210,000 in sales.
The order may be very profitable.
That does not remove the timing problem.
The business must still fund the $144,000 before receiving the $210,000.
The strength of the eventual margin does not change the fact that cash leaves first.
This is why working capital finance is often about timing rather than rescuing a poorly performing business.
A profitable transaction can still require finance if the cash conversion takes longer than the business can comfortably carry from its own reserves.
Funding the logistics component can protect operating cash
A business may have enough cash to pay for the inventory but prefer not to use additional reserves for all the associated costs.
For example, it may be comfortable paying the supplier itself while considering finance for freight, warehousing and other operating expenses.
Another business may decide to fund part of both the stock and logistics requirement while retaining a set amount of cash as an operating buffer.
There is no requirement for the finance strategy to mirror the supplier invoice exactly.
The better approach is to identify the complete funding gap and decide which part, if any, should be financed.
A revolving facility may suit repeated stock movements
A one-off facility may be appropriate for a single large order.
But some businesses continually move through the same cycle:
order stock
pay freight
receive stock
store and distribute it
sell it
collect customer payments
place the next order
If each cycle creates a temporary cash gap, the business may benefit from considering whether a revolving working capital facility is more suitable than repeatedly arranging separate loans.
The question is whether the cash need repeats.
If it does, the finance structure may need to repeat with it.
Customer payment terms can extend the problem well past delivery
A business may successfully move inventory out of the warehouse and still not have the cash.
If commercial customers receive 30-day, 45-day or 60-day terms, the money moves from inventory into accounts receivable rather than into the bank account.
The business has solved one working capital problem and created another.
This is where debtor or invoice finance may become relevant.
For eligible business-to-business invoices, releasing part of the value of receivables earlier may help the business fund the next purchasing and freight cycle.
In some businesses, the strongest solution is not focused only on buying stock.
It also considers how quickly cash is collected after the stock has been sold.
Warehousing costs can increase when stock moves more slowly than expected
Additional inventory is not free to hold.
If sales take longer than planned, the business may face continuing storage costs.
That can include:
external warehouse fees
overflow storage
additional rent
handling fees
insurance costs
stock management costs
This is why businesses should be conservative about stock turnover assumptions when deciding how much inventory to purchase.
A finance structure that works if stock sells within 30 days may become uncomfortable if it takes 90 days.
Protect cash for expenses that cannot wait
Freight and warehousing are important, but they compete with other commitments.
Payroll cannot usually be postponed because stock has not sold.
Tax obligations continue.
Rent is still due.
Other suppliers may need payment.
Equipment may need repairing.
A large customer may pay later than expected.
Before committing cash to an inventory cycle, it can therefore be useful to decide how much money the business wants to keep untouched.
That reserve can then be treated as unavailable for the stock order.
The remaining gap becomes the amount the business may need to fund from another source.
The September-to-January period can stretch the stock cycle
For businesses increasing inventory later in the year, the cash cycle can become more complex.
Stock may be ordered in September or October.
Freight and storage costs may rise in November.
Sales may strengthen in December.
But some customers may not pay until January.
At the same time, payroll, supplier invoices, tax and normal operating expenses continue.
The important date is therefore not always when the stock arrives.
It may be when the last significant customer payment is expected to clear.
Funding should be considered across that entire period.
Know the true cost before saying yes to the order
If a Wetherill Park business is preparing to increase stock holdings, the supplier invoice should not be the only number in the funding calculation.
Add the freight, warehousing, labour, handling and distribution costs required to turn that purchase into an actual sale.
Then compare the total requirement with the cash the business wants to retain.
Thrive Broking can review the stock cycle, supplier payments, operating costs and customer payment terms to consider working capital, trade, inventory or debtor finance options that may be relevant.
The objective is not simply to finance inventory.
It is to make sure the business has enough cash to move that inventory all the way from the supplier to the customer without starving the rest of the operation along the way.