Retail Cash Flow Cycle

    Retail Cash Flow Cycle

    Even the best retailers can find themselves in a cash crunch. Cash flow is the single biggest issue retailers face. Profitable companies can find themselves without access to liquid cash. As a retailer, getting your hands on cash and keeping cash flow moving through your business can mean the difference between managing through tough economic times and closing up shop.  Critical retail measurements like inventory turn and profit contribution are early indicators of a healthy cash flow cycle.

    The best possible cash flow situation is when there are purchase deals that are longer than sales cycles.  Imagine a vendor offered you a program where a $700 purchase needed to be paid in 90 days. Your price markup takes the retail price of that wholesale purchase to $1,000.   If your stock sold in 60 days, you would have a positive situation where you sold your goods before you had to pay for them, You would gain 30 days of “float” in your cash flow. You could earn interest on the full sales price ($1,000) before paying out the wholesale price to your vendor ($700.)

    Now imagine the same scenario where the 90 day purchase took 120 days to sell.  Even though the profit rates or margins is the same 42% markup rate, the first situation is far better from a cash flow point of view.

    Smart retailers review their financing terms from vendors, control their inventory (stock) and rely on management reporting to maintain visibility to their cash flow.  As important as managing the outflow of cash is managing the cash coming into the organization.

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