CPG working capital strains revealed

Physical-product brands can post revenue growth and still run short of cash. In wholesale CPG, the problem is usually timing: companies pay for ingredients, packaging, manufacturing, freight and storage before products reach shelves, then wait 30, 60 or 90 days — sometimes longer — to collect from retailers and distributors. (primaryfunding.com) That gap is why working capital becomes a scaling constraint long before demand does. The core issue is not whether a brand is profitable on paper. It is whether cash leaves the business much earlier than it returns. (cfoproanalytics.com) ### Why does wholesale growth strain cash faster than DTC growth? Retail and distributor accounts usually come with fixed payment terms, while production costs are paid earlier. (blog.lunrcapital.com) Primary Funding says ingredients, packaging, co-packers, freight and storage costs hit before a product reaches a shelf, while retailers and distributors often pay in 60 to 90 days or longer. Direct-to-consumer sales compress that lag because the customer pays near the point of order. (primaryfunding.com) Wholesale does the opposite: the brand funds the inventory build, ships the order, invoices the customer, and then waits. As order sizes grow, the cash needed to support them can rise faster than reported revenue. ### Where exactly does the cash get stuck? The cash conversion cycle is the clearest way to see it. CFO Pro Analytics defines the cycle as the time it takes to turn cash spent on production into cash collected from customers, and says it is driven by days inventory outstanding, days sales outstanding and days payables outstanding. (primaryfunding.com) For many CPG businesses, inventory is the first trap. Cash is committed to raw materials and finished goods before the sale is collected. Receivables are the second trap, especially when large retailers dictate long terms or apply deductions and chargebacks. Payables can offset some of that burden, but not enough if suppliers want faster payment than customers provide. (primaryfunding.com) ### Why do long manufacturing cycles make the problem worse for exporters? Long lead times extend the period before cash can come back. If a manufacturer needs weeks or months to source inputs, produce goods and ship them, liquidity stays tied up across the full production window and the receivables window that follows. That is why trade-finance tools matter. Deferred letters of credit can be structured so payment timing better matches production and shipment milestones, reducing the mismatch between when exporters spend cash and when they receive it. (cfoproanalytics.com) The same logic applies in domestic wholesale: the closer receipts are aligned to operational milestones, the less balance-sheet strain growth creates. ### Which metrics matter most when brands scale? Days inventory outstanding, days sales outstanding and days payables outstanding are the operating metrics that determine whether growth converts into cash. (primaryfunding.com) CFO Pro Analytics says the cycle for CPG companies can range from 45 to more than 210 days depending on inventory turnover, receivable cycles, distributor terms and production lead times. In practice, that means inventory turns, receivables discipline and payment-term negotiation matter as much as gross margin when a brand moves deeper into wholesale. A business can report rising sales and acceptable margins while still running into liquidity stress if inventory builds too early or collections arrive too late. ### What do companies use to bridge the gap? Purchase-order financing and accounts-receivable factoring are two common tools. Lunr Capital says PO financing helps fund production and shipment, while AR factoring addresses the period after a wholesale order has been fulfilled but before the retailer pays. Factoring providers typically advance 80% to 90% of the invoice amount and collect when the retailer pays. (cfoproanalytics.com) Those tools do not fix weak unit economics. They buy time. The underlying operating job remains the same: shorten inventory dwell, collect faster, and avoid letting customer terms expand faster than the company’s access to cash. (blog.lunrcapital.com) (primaryfunding.com)