Published: 03/13/2026
Last updated: 03/30/2026
If you run a product business, you already know the feeling. You've got demand. You've got suppliers ready to go. And somehow, you're still watching cash disappear before the money comes back.
That's not a sign something's broken. It's just how product businesses work – you spend before you earn, often by months. The gap between paying your supplier and getting paid by your customer has always existed.
But right now, with supply chains still adjusting, payment terms stretching, and the cost of capital higher than it's been in years, that gap is wider, more expensive, and less forgiving than it used to be. And to add to that, according to the Asian Development Bank, the global trade finance gap has reached $2.5 trillion, meaning trillions of dollars in legitimate trade goes unfunded every year because businesses can't access the working capital to support it.
It has a name: a working capital gap. And managing it well is one of the most important – and most overlooked – drivers of whether a product brand stays stuck or keeps growing.
💡 Key takeaways
Working capital is the cash tied up between supplier payments and customer payments
Product businesses often face large cash gaps due to inventory cycles and payment terms
The key metrics to track are DSO, DPO, and inventory days
Improving working capital requires both operational changes and financing strategies
There are many ways to fill the cash gap – from inventory financing to invoice financing – and choosing the right one depends on the challenge at hand
What is working capital?
Working capital is the difference between a company's short-term assets and short-term liabilities. But for product brands, the accounting definition only tells part of the story.
In practice, working capital is better understood as the cash tied up in your operating cycle – the time between when you pay your suppliers and when your customers pay you. During that window, your money is locked inside your business in the form of inventory sitting in a warehouse, invoices waiting to be settled, or production orders that haven't shipped yet. It's not lost, but it's not available either.
Net working capital (NWC) is the formal term for this – calculated as current assets minus current liabilities:
Net working capital = Current assets − Current liabilities
For product businesses, current assets are primarily inventory, accounts receivable, and cash. Current liabilities are what you owe in the short term: supplier invoices, short-term loans, and other payables.
The working capital ratio – also called the current ratio – expresses the same relationship as a number:
Working capital ratio = Current assets ÷ Current liabilities
A ratio above 1.0 means you have more short-term assets than liabilities. For product businesses, a ratio between 1.2 and 2.0 is generally considered healthy. Below 1.0 is a warning sign – it means your short-term obligations outweigh what you have available to meet them.
Both numbers matter, but neither tells the full story on their own. A business can have a healthy NWC on paper and still run out of cash if the timing is wrong – if inventory isn't moving, invoices aren't being paid, or supplier terms don't align with customer payment cycles. That's why the metrics that actually drive working capital – inventory days, DSO, and DPO – matter just as much as the headline number.
For product companies, that cycle typically involves three things: inventory (products that have been produced but not yet sold), accounts receivable (invoices issued but not yet paid), and supplier obligations (money owed to manufacturers, freight partners, and logistics providers). The longer cash stays tied up across these three areas, the harder it becomes to fund operations, take on new orders, or invest in growth – even when the business is performing well on paper.
Why product brands struggle with working capital
Physical product businesses have a structural problem that service businesses and software companies don't: you have to spend money long before you make any.
The supply chain model that lets you manufacture at scale is the same model that creates cash gaps – and for most brands, those gaps are unavoidable. The goal isn't to eliminate them. It's to manage them well enough that they don't cap your growth.
Here's how the math tends to stack up. Manufacturers typically want 30–50% upfront before production even starts. Then production itself takes weeks, sometimes months. Then shipping – often another three to six weeks for international freight. And once your products land with a retailer or distributor, you're looking at payment terms of 30 to 90 days before that revenue actually hits your account.
Put it all together and a product brand can place an order today and not see the cash return for four or five months. As order sizes grow, so does the amount of capital tied up in that cycle at any given time. That's not a cash flow problem. That's just the business model – and the brands that understand it early are the ones that scale without the constant scramble. And with trade routes shifting and sourcing costs harder to predict than they've been in years, getting that understanding right has never mattered more. Allianz Trade's analysis of European trade patterns shows just how exposed product businesses are to ongoing supply chain fragmentation.
The key working capital metrics
To manage working capital effectively, you need to be able to measure it. Three metrics are central to understanding how cash moves through a product business.
Days Sales Outstanding (DSO) measures how long it takes to collect payment after a sale is made. A high DSO means cash is sitting in unpaid invoices rather than in your account – a common problem for brands selling through retailers with long payment terms. Allianz Trade's research on commercial debt collection highlights how trade fragmentation is adding complexity to payment cycles – with more disputes, longer resolution times, and greater variance in when cash actually lands. For product brands managing multiple wholesale and retail relationships, that makes a tight handle on DSO more important than ever.
Days Payable Outstanding (DPO) measures how long you take to pay your suppliers. A higher DPO is generally positive from a working capital perspective, since it means you're holding onto cash longer before it goes out. Negotiating better supplier terms is one of the most direct ways to improve DPO.
Inventory Days measures how long products sit in stock before being sold. The longer inventory sits, the more capital is tied up in goods that haven't yet generated revenue. Accurate demand forecasting and lean inventory practices are the main levers here.
The cash conversion cycle
These three metrics combine into a single, powerful number: the cash conversion cycle (CCC).
For a practical breakdown of how to actually shorten your cycle, see How to unlock a faster cash conversion cycle
Cash conversion cycle = Inventory Days + DSO − DPO
The result tells you how many days, on average, your cash is tied up in operations before it comes back to you. A cycle of 30–60 days is generally considered healthy. For product brands with international manufacturing and retail distribution, cycles of 90 to 150 days – or longer – are common.
Shortening the cash conversion cycle is one of the most effective ways to improve liquidity without needing to raise external capital. Every day you can take out of the cycle is cash that's available to reinvest in the business.
How working capital affects growth
Working capital doesn't just affect your day-to-day operations – it determines the ceiling on how fast you can grow. Even when demand is strong and your product is selling well, a constrained working capital position can force you to make choices you don't want to make: declining a large retail order because you can't fund the inventory, delaying a product launch, or passing on a bulk production run that would have reduced your unit costs significantly. The scale of the opportunity is significant. PwC's Working Capital Study consistently finds billions locked up in operating cycles across industries – capital that's already inside businesses but not working for them.
For many product brands, the growth constraint is never really about demand. Customers exist. Retailers want to stock the product. The problem is that meeting that demand requires capital that's already locked up in the current cycle – or that hasn't come back from the last one yet.
This is why working capital management becomes increasingly important as a brand scales. In the early stages, the cash gaps are small and manageable. As order sizes grow and supply chains get more complex, those gaps grow with them. Brands that don't have a clear picture of their cash conversion cycle – and a plan for financing it – often find that their biggest growth opportunities are also their biggest cash flow risks.
Ways to improve working capital
Improving your working capital position usually comes down to a mix of operational discipline and smarter financial structuring. There's rarely one fix – but there are clear levers worth pulling.
Negotiate better supplier terms. Extending payment terms from 30 days to 60 or 90 can meaningfully shift your DPO and keep cash in your account longer. Many suppliers are open to this, especially as your order volumes grow and you become a more valuable customer. It's one of the highest-leverage conversations you can have – and most founders wait too long to have it.
Tighten your inventory. Excess stock is one of the most expensive and common working capital drains. Better demand forecasting, fewer SKUs, and leaner production runs can free up significant capital that's currently sitting in a warehouse doing nothing.
Get paid faster. If you sell to retailers or distributors, look hard at your payment terms and whether you're actually enforcing them. Early payment incentives, automated reminders, and cleaner invoicing processes all help reduce DSO. Every day you shorten that cycle is cash back in your hands sooner.
Use financing as a tool, not a last resort. For most growing product brands, some level of external financing isn't a weakness – it's a structural necessity. The question isn't whether to use it, but which type makes sense for which problem. More on that below.
Financing options for working capital
When operational improvements aren't enough – or when you're growing too fast to close the cash gap through efficiency alone – external financing becomes an important tool. The right option depends heavily on where you are as a business.
Bank loans are best suited for established brands with strong financials and a clear, predictable use of funds. They typically offer the lowest cost of capital, but approval processes are slow and criteria are strict. If you're early-stage or don't have audited financials, a traditional bank loan is unlikely to be your first option. And tighter lending conditions aren't just a feeling – they're documented. The Bank for International Settlements' latest financial stability assessment points to continued pressure on credit availability for smaller businesses, reinforcing why many product brands are looking beyond traditional bank financing to bridge their working capital gaps.
Revolving credit lines offer more flexibility than a term loan – you draw what you need and repay as cash comes in. They work well for brands that have recurring but variable working capital needs. Like bank loans, they typically require a solid credit history and financial track record.
Invoice financing is worth considering for brands with strong wholesale or retail order books but slow-paying customers. It allows you to unlock cash from outstanding invoices before they're due, improving cash flow without taking on traditional debt. The trade-off is that it only helps after sales are made – it doesn't solve the problem of funding inventory before it ships.
Inventory financing is specifically designed to bridge the gap between placing a production order and receiving payment for the goods. It's particularly useful for brands in a growth phase, where production volumes are increasing faster than the cash cycle can support. Costs can be higher than bank financing, but for the right brand at the right moment, the ability to take on larger orders without equity dilution makes it a compelling option.
Equity funding is a longer-term solution rather than a working capital fix. Raising from investors provides capital without repayment obligations, but it comes at the cost of ownership and control. For most founders, equity should fund strategic growth – new markets, new products, team building – rather than fill routine cash gaps that operational or debt financing can handle more efficiently.
Many growing brands end up using a combination of these approaches: financing facilities to bridge inventory gaps, invoice financing to accelerate receivables, and equity for larger strategic bets.
Which financing option is right for you?
A simple way to think about it:
You have unpaid invoices sitting with slow-paying retailers → Invoice financing is your most immediate lever. You're not waiting on a loan approval – you're unlocking cash that's already yours.
You need to fund a production order before you have sales → Inventory financing is built for exactly this. It bridges the gap between the supplier deposit and the eventual customer payment.
Your working capital needs are ongoing and variable → A revolving credit line gives you a flexible facility to draw on as needed, without taking out a new loan every cycle.
You have strong financials and a stable, predictable business → A bank loan offers the lowest cost of capital and makes sense when you know exactly what you need the money for. However, the application process is usually rigid and can take a lot of time.
You're raising capital to expand into new markets or build out your team → That's equity territory. Use it for strategic growth, not to fill cash gaps you could solve more cheaply another way. If you're weighing up whether to raise equity to solve a working capital problem, it's worth reading this first: Why growing brands shouldn't give up equity just to fund stock.
If you're not sure where you fall, a useful starting question is: am I trying to solve a short-term timing problem, or fund a long-term strategic move? Most working capital challenges are timing problems – and there's almost always a debt or financing solution better suited to them than giving up equity.
How inventory-heavy businesses use technology to manage working capital
The brands that manage working capital well aren't necessarily smarter – they usually just have better visibility. When you can see your cash conversion cycle in real time, you can spot gaps before they become crises, make faster decisions about production timing, and know exactly when to draw on financing.
Modern cash flow tools, ERP systems, and inventory platforms have made that visibility more accessible than it's ever been. The practical move is finding tools that connect your inventory, accounting, and sales data in one place – rather than reconciling three spreadsheets at month end and hoping they agree.
On the financing side, the options available to product brands today look nothing like they did a decade ago. Revenue-based financing, embedded lending, and supply chain finance platforms have made it faster and simpler to access working capital without going through a bank. These solutions are increasingly built specifically for inventory-based businesses and can flex with your seasonal cycles or production ramp-ups. The result: less reason than ever to choose between slowing growth and giving up equity every time a cash gap appears.
Working capital challenges across different sales channels
The sales channels a product brand operates through have a significant impact on its working capital requirements – and it's an area that often catches founders off guard when they expand beyond their original model.
Brands selling directly to consumers through their own e-commerce store typically benefit from faster payment collection, since online transactions settle almost immediately. This shorter receivables cycle can meaningfully improve DSO and reduce the cash conversion cycle compared to wholesale or retail models. The trade-off is that DTC brands carry more inventory risk, particularly when they're holding large amounts of stock in anticipation of demand that may not arrive at the pace expected.
Wholesale and retail partnerships bring a more complex cash picture. Retailers and distributors commonly operate on payment terms of 30 to 90 days, meaning a brand can ship a significant order and wait three months before seeing any cash. For brands managing multiple channels simultaneously – DTC, wholesale, and marketplace sales – the challenge is forecasting cash inflows across very different payment timelines. Expanding into retail can unlock significant revenue, but it also increases the amount of capital sitting in the operating cycle at any given time. Understanding those implications before signing a retail agreement is essential, not an afterthought.
Seasonal businesses and working capital planning
For product brands with seasonal demand – in apparel, outdoor goods, gifting, or consumer electronics – working capital management requires an additional layer of planning. Seasonal businesses must often place large production orders months in advance of their peak selling period, meaning the cash tied up in inventory reaches its highest point precisely when revenue hasn't arrived yet. Without careful planning, this creates a predictable but high-stakes cash gap that can leave brands unable to fulfill orders or restock quickly during their most important trading window.
Effective working capital planning for seasonal brands starts with accurate demand forecasting aligned to the production and payment calendar. Brands that can model their cash position month by month – accounting for supplier deposits, lead times, inbound logistics, and expected retail payment schedules – are far better positioned to identify financing needs well in advance. Securing financing before the cash gap hits is almost always easier and less costly than scrambling for it in the middle of peak season. Many seasonal brands establish inventory financing facilities or credit lines during quieter periods so that capital is available when production ramps up, allowing them to scale confidently without cash constraints capping their growth at the worst possible moment.
Practical example: How working capital plays out in reality
To make this concrete, consider a typical scenario for a growing product brand launching a new product line.
The brand places a $100,000 production order with a manufacturer. The timeline looks like this: a 50% deposit is paid on day zero to start production. Manufacturing takes 60 days. Shipping and logistics take another 30 days. Retailers then pay invoices 60 days after receiving goods.
That means the cash doesn't return to the business until day 150 – five months after the initial outlay. During that entire window, the brand still needs to pay for operations, marketing, salaries, and potentially the next production run. If the brand is growing, each new cycle requires more capital than the last, which is why the working capital gap tends to grow alongside the business rather than stabilize.
This is the core challenge in scaling a product brand – and why having a clear picture of your cash conversion cycle, and a financing strategy to support it, matters so much.
Summary
Working capital is one of the most important financial drivers for any product brand – and one of the most misunderstood. Because physical products require manufacturing, shipping, and distribution, there's almost always a meaningful gap between paying suppliers and getting paid by customers. That gap doesn't shrink as you grow. It gets bigger.
Understanding your inventory days, DSO, and DPO gives you a clear picture of how efficiently cash moves through your business. Improving those numbers – through operational discipline, smarter payment terms, or the right financing structure – shortens your cash conversion cycle and unlocks room to grow faster without constantly running into cash walls.
For most product brands, the real constraint on growth isn't demand. It's having the capital available to meet it. The brands that get on top of their working capital position early, track it consistently, and build a financing strategy around it are the ones that scale – without the cash crises.
About Treyd
Treyd is working capital built for product businesses. We help fast-growing brands, wholesalers, and distributors close the gap between paying suppliers and getting paid by customers – so cash flow stops being the thing that slows you down.
Buy first, pay suppliers later. Advance your customer invoices. No collateral, no lengthy bank process – just a simple, human experience built around how product businesses actually work.
Over 1500 brands trust Treyd to fund their growth. See how at treyd.io/customers →
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