Inventory Is Taking Up Too Much Cash — What Should I Be Watching?

Stock is generally funded either by cash you've already paid out, or by supplier credit you'll need to pay soon — either way, it represents cash that's committed rather than freely available. Too much stock, or stock that moves too slowly, ties up that cash — delaying other uses like covering expenses, seizing an opportunity, or building a genuine cash reserve. Watching a small set of specific indicators helps catch this before it becomes a genuine cash-flow problem.

• Inventory turnover. How many times your stock is sold and replaced over a period — a slowing turnover rate is often the earliest sign that cash is quietly building up in stock rather than moving through the business.

• Days inventory on hand. Roughly how many days, on average, stock sits before it sells. A rising trend here directly mirrors a growing cash-flow drag.

• Stock as a proportion of total assets. If inventory makes up a growing share of what the business owns, relative to cash and other assets, that's worth understanding — is it deliberate, ahead of a busy period, or a symptom of slowing sales?

• Slow-moving and dead stock specifically. Not all inventory is equal — a small amount of genuinely unsellable or obsolete stock can represent a disproportionate, hidden chunk of tied-up cash.

Sales have barely moved, but stock on hand has grown significantly, and the average time inventory sits before selling has increased by roughly 30 days on this basis — the exact figure shifts slightly depending on whether you annualise the calculation or use a 30-day month, but the direction and scale of the trend is the same either way. Roughly $28,000 more cash is now tied up in stock than six months ago, without a corresponding increase in what the business is actually selling — a pattern easy to miss without specifically watching these figures over time.

Excess stock rarely arrives all at once — it builds slowly, through slightly-too-generous reorder decisions, a slow-moving product line nobody's reviewed recently, or simply not noticing that sales have slowed while ordering patterns haven't adjusted. This is exactly why the indicators above are worth checking on a regular schedule, not just when cash already feels tight.

• Review reorder quantities against actual, current sales patterns. Not historical assumptions that may no longer reflect demand.

• Actively move slow or dead stock. A discount or clearance sale converts tied-up cash back into usable cash, even at reduced margin — better than stock that never sells at all.

• Tighten supplier terms where possible. Ordering more frequently in smaller quantities, rather than large infrequent orders, can reduce the average cash tied up at any given time.

• Set a genuine target and review it regularly. A specific days-on-hand or turnover target, checked monthly alongside your other financial reporting, keeps this from silently drifting.

• Do I track inventory turnover or days-on-hand, or only look at the physical stock level?

• Has my average stock level grown faster than my sales over the last six to twelve months?

• Do I know which specific products are slow-moving or genuinely dead stock?

• Have I reviewed my reorder patterns against actual current demand recently?

• you want proper inventory metrics set up and tracked as part of your regular reporting;

• you suspect significant cash is tied up in slow-moving stock and want it identified and addressed;

• you're reviewing supplier and reorder terms and want the cash-flow impact modelled; or

• excess stock is contributing to a broader cash-flow problem you want properly diagnosed.

→ My Business Is Making a Profit — So Why Is There No Money in the Bank?

→ How Can I Improve My Business Cash Flow Without Simply Cutting Costs?

→ What Should I Review Every Month in My Business Accounts?

SKC Accounting | Knowledge Centre | Knowledge Guide 091

Last reviewed: August 2026

General information only. This guide does not take into account your individual circumstances and is not a substitute for professional accounting, taxation, legal or financial advice.