Published: 03/24/2026
Last updated: 03/24/2026
Most founders know their revenue, fewer know their cash conversion cycle. And, almost none can tell you their DPO off the top of their head, even though it’s quietly shaping whether the business can afford its next order or not. This is a safe space, no need to lie about how often you check your DPO.
Working capital problems rarely announce themselves. They creep up – in a supplier payment that strains the account, a growth opportunity you can’t quite take, a quarter that looked great on paper but left you short on cash. By the time it's obvious, you're already in reactive mode.
This guide gives you five numbers to track. Together they tell you whether your working capital is healthy, where the pressure is coming from, and what to do about it – before it becomes a problem.
💡Key takeaways
Working capital health comes down to five metrics: current ratio, cash conversion cycle (CCC), days inventory outstanding (DIO), days sales outstanding (DSO), and days payable outstanding (DPO).
You don't need all five in a dashboard on day one – start with CCC and build from there.
These metrics work together. Improving one often affects the others.
For product companies, inventory is usually where the most cash is stuck – and where the biggest gains are.
Financing can bridge gaps, but understanding your metrics first tells you how much you actually need.
Why your working capital needs a health check
There's a version of this article written for accountants. This isn't it.
If you run a product business – whether you're selling DTC, wholesale, or both – your cash is constantly in motion. It goes out to suppliers. It sits in inventory. It comes back in from customers. The time between "cash out" and "cash back in" is your working capital gap, and managing it well is one of the biggest differences between brands that scale smoothly and brands that grow themselves into a cash crisis.
The five metrics below are your diagnostic tools. Each one tells you something specific about where your cash is, how long it's stuck there, and what's driving the pressure. Think of this less as a reading list and more as a checklist you run through when you want an honest picture of your working capital health.
The five metrics
1. Current ratio
What it is: A snapshot of your short-term financial health. It compares what you own in the short term (current assets) to what you owe in the short term (current liabilities).
The formula:
Current ratio = current assets ÷ current liabilities
What good looks like: A ratio above 1.0 means you have more coming in than going out in the short term. For product brands, 1.5–2.0 is a healthy range. Below 1.0 is a warning sign – it means you could struggle to meet short-term obligations.
Why it matters for founders: It's the quickest single-number health check for your balance sheet. If you're heading into a growth phase or a big inventory purchase, check this first.
2. Cash conversion cycle (CCC)
What it is: The number of days it takes to turn your inventory investment into actual cash in the bank. It's the single most important working capital metric for product brands.
The formula:
CCC = DIO + DSO – DPO
(We'll explain DIO, DSO and DPO below – they feed directly into this one.)
What good looks like: Lower is better. A CCC of 30–60 days is reasonable for most product brands. Some fast-moving categories can get below 30. If you're above 90, cash is stuck for a long time and financing becomes more important.
Why it matters for founders: If your CCC is 75 days, that means every pound you spend on inventory takes 75 days to come back. Double your order size and you've doubled the cash you need to have available. This is why growing brands run into cash problems – not because they're failing, but because growth itself consumes cash.
3. Days inventory outstanding (DIO)
What it is: How many days, on average, your inventory sits before it's sold.
The formula:
DIO = (average inventory ÷ COGS) × number of days in period
What good looks like: Depends heavily on your category. Fashion might have a DIO of 60–90 days. Fast-moving consumer goods might be 20–30. The key is knowing your benchmark and tracking the trend – is it going up (inventory sitting longer) or down (turning faster)?
Why it matters for founders: High DIO means cash is locked up in stock for longer. It could signal overstocking, slow-moving SKUs, or demand forecasting issues. It's often the biggest lever in improving your overall CCC.
A quick example: If you hold £200,000 of inventory and your annual COGS is £1,200,000, your DIO is roughly 61 days. That's 61 days of cash tied up before a sale even happens.
4. Days sales outstanding (DSO)
What it is: How long it takes to collect payment after a sale. Relevant mainly if you sell to retailers or B2B customers on payment terms.
The formula:
DSO = (accounts receivable ÷ revenue) × number of days in period
What good looks like: The lower the better. If you're selling DTC, your DSO is close to zero (payment is instant). If you're selling to retailers on 60–90 day terms, your DSO reflects that – and it's worth knowing exactly what it costs you in working capital.
Why it matters for founders: A retailer paying on 90-day terms isn't just a payment preference – it's a loan you're giving them, funded from your own cash. Knowing your DSO helps you price that cost in, and decide whether to offer early payment discounts or explore invoice financing.
5. Days payable outstanding (DPO)
What it is: How long you take to pay your suppliers. Unlike the other metrics, higher is generally better here – it means you're holding onto cash for longer.
The formula:
DPO = (accounts payable ÷ COGS) × number of days in period
What good looks like: This depends on your supplier relationships and terms. Many product brands pay upfront or within 30 days. If you can negotiate 45–60 day terms with key suppliers, you extend the window before cash leaves – which directly improves your CCC.
Why it matters for founders: DPO is one of the most underused levers in working capital management. Founders often focus on selling faster (improving DSO and DIO) when there's just as much opportunity in negotiating better terms on the payables side.
How the five metrics connect
The current ratio gives you a snapshot. The other four tell you the story behind it.
CCC is the headline number – the total days your cash is tied up. DIO, DSO and DPO are the three levers that move it:
Lower your DIO → inventory turns faster → CCC improves
Lower your DSO → customers pay faster → CCC improves
Raise your DPO → you pay suppliers later → CCC improves
In practice, you probably can't move all three at once. Most product brands find the biggest gain in one area – usually inventory or payables – and focus there first.
What to do when the numbers aren't where you want them
If your DIO is high: Look at slow-moving SKUs, review your reorder points, and consider whether your forecasting process needs a rethink. Dead stock is the most expensive kind of cash to have sitting around.
If your DSO is high: Audit your payment terms with retailers. Consider early payment discounts for key accounts. Invoice financing can also bridge the gap while you collect.
If your DPO is low: It's worth a conversation with your key suppliers about extended terms. Even moving from 30 to 45 days can meaningfully improve your cash position – especially ahead of a big seasonal push.
If your current ratio is below 1.5: You may need to look at short-term financing options before your next growth phase. Knowing your ratio before you need cash is much better than knowing it after.
This is exactly the situation Treyd is built for – product brands that have good fundamentals but need working capital to bridge the gap between paying suppliers and getting paid by customers.
Summary
Your working capital health isn't one number – it's a picture built from five. The current ratio tells you if you're stable right now. The cash conversion cycle tells you how long your cash is tied up. DIO, DSO and DPO tell you exactly where and why.
Run through these numbers quarterly at minimum. Monthly if you're growing fast or heading into a peak season. The goal isn't perfection – it's not being surprised.
If you know your numbers and there's still a gap to bridge, that's what working capital financing is for. But the best time to look at financing is when you understand your metrics well enough to know exactly how much you need – and why.
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 →
💜 Grow faster. Keep control. Bet bigger.
