NPCA Newsletter: Cash Me If You Can Part One: The Dollar Goes Out (Part 1 of a 3-Part Series)
Newsletter article summary: The first stretch of the cash conversion cycle—the moment a business spends money on inventory before earning it back—introduces two of the key clocks: Days Inventory Outstanding (how long cash stays frozen in materials and unsold goods) and Days Payable Outstanding (how long you can hold onto cash before paying suppliers). We argue that the ideal is a short DIO paired with a long DPO. The practical takeaway is that supplier terms, deposits, and minimum order quantities are really financing decisions in disguise, so negotiating them well lets your suppliers effectively fund your growth instead of trapping your cash.
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Presenting... The Cash Me If You Can Podcast Series 🎤
Join us for a three-part podcast series on the cash conversion cycle!
The first installment, featuring Opply, will cover how every dollar a brand spends on inventory starts a clock. The question is how long that cash stays gone before it comes back, who's financing the gap in the meantime, and how you can optimize it for your business. We'll cover all that and more.
Part One: October 1st, 11:30AM PST/ 2:30PM EST
Sign up for Part One here:
Part Two: October 22nd, 11:30AM PST/ 2:30PM EST
Sign up for Part Two here:
Part Three: November 12th, 11:30AM PST/ 2:30PM EST
Sign up for Part Three here:
The Cash Conversion Cycle, Defined
Every cash conversion cycle begins and ends the same way: with money being spent and money being collected. What we want to measure is the time in between – and where exactly – the money is sitting, and for how long it’s there. In general, the faster you can get the spent money back, the more cash-efficient your business is and the less debt or external capital you need to grow.
Picture a bakery. To make the bread that the bakery can sell, it first has to buy ingredients – flour, sugar, and yeast. Those ingredients symbolize a bill that the bakery now owes its suppliers, otherwise known as Accounts Payable (AP), aka money spent.
This first step thus creates two things at once: inventory (materials, not cash) and a payable (money the bakery owes). This starts the clock running… companies need to make sure that the money they spent comes back to them before time runs out. Remember, however, that AP is not cash spent. It is an IOU. And the longer you can get the vendor to agree to carry your IOU (terms), the shorter your cash conversion cycle (reminder, shorter is better).
The First Two Clocks, DIO and DPO:
The first clock is Days Inventory Outstanding (DIO), which represents the amount of days that your cash sits frozen as materials and finished goods before it’s finally sold. The bakery’s DIO clock starts the second that flour arrives and doesn’t stop until the bread is made and shipped out the door. This is often where cash is stuck the longest, and we’ll get into this more in Part Two of the Cash Me If You Can series.
The second clock is Days Payable Outstanding (DPO), which is how many days it takes to actually pay your suppliers after they’ve shipped materials to you. If you buy flour today and pay for it in 60 days, that’s a 60-day DPO. This would mean that for those 60 days, your supplier is financing your business – you’re holding their materials and retaining your cash at the same time.
The best outcome for business owners is a short DIO and a long DPO. A short DIO means that your cash doesn’t sit idle as inventory. A long DPO means that you keep your cash in your own account longer while someone else’s resources work for you. Lengthening DPO often doesn’t cost you anything, and it’s usually the cheapest financing that a growing company can find.
Terms and Financing:
Vendor terms are so much more than just a line in a purchasing contract. “Net 30,” “net 90,” or “cash on delivery” are all decisions about who funds your operations and for how long.
Pay on delivery, and you fund everything yourself from day one. Negotiate “net 90,” and your supplier effectively hands you a three-month interest-free loan. For a company growing quickly, and where each order demands cash before the last one has been collected, those extra weeks can make the difference between funding growth out of operations and funding it out of a credit line.
Deposits and MOQs:
Two supplier requirements can trap cash while not showing up as problems on the income statement, so they’re useful for business owners to be aware of.
Deposits run the DPO clock backwards. When a vendor asks for 50% upfront, part of your dollar leaves before a single loaf is baked. This shortens your payment window and pushes cash out the door earlier than is ideal.
Minimum order quantities (MOQs) can attack the inventory clock. If a supplier will only sell flour in quantities beyond what your next run of production needs, then you have excess. Excess sits in a warehouse that you can’t touch and quickly convert to cash, which stretches out DIO. A “great price” on twice the flour you can use in six months could actually pose a cash flow problem for you.
Suppliers As A Working Capital Lever:
A supplier offering rock-bottom pricing but demanding a deposit, large MOQ, and payment on delivery can cost you far more in trapped cash than one who charges a few cents more per unit but offers net-60, no deposit, and order sizes that match your run.
The second supplier is helping finance your business, while the first is draining it.
The supplier conversation shouldn’t stop at price. It should cover terms, deposits, order minimums, and flexibility, as each of these levers impacts DPO and DIO. Together, they decide how long your dollar is gone before the cycle even reaches production.
Strong supplier relationships can earn you an extra 30 days, waived deposits, or a smaller minimum during a slower season.
The Takeaway:
A dollar going out the door is an unavoidable part of business. But what you CAN control is how much cash leaves, how early it leaves, and how much time you have to replace it. Buy well, and you start the cycle working FOR you, with your suppliers helping fund the trip. Buy poorly, and you’ve trapped money in a warehouse and paid for the privilege.
Next in the series, we’ll cover where money often gets stuck – inventory as it moves through production, warehousing, and shipping. This is frequently the longest and least visible leg of the cash flow journey and, consequently, is the cycle segment that business owners often underestimate the most.
Deal Highlights
NP Capital is advising a multi-platform industrial holding company on acquisition modeling and capital structure advisory. The engagement aligns with the company's mission to acquire established middle-market manufacturers across combustion, aerospace, and fluid power and give them the leadership, capital, and global experience to grow. NP Capital is building the consolidated acquisition and forecast model behind the platform's M&A pipeline and lender discussions, positioning it to execute future transactions and capital raises from a stronger financial foundation.
Industry Headlines
Nestle Sells Vitamins Business to PE Buyer for $1 Billion
Nestle SA plans to sell its mainstream vitamins and supplements business to Yellow Wood Partners for $1 billion.
The deal includes brands such as Nature’s Bounty, Osteo Bi-Flex and Puritan’s Pride alongside the US private-label supplements business and its manufacturing and logistics operations.
The proceeds from the sale will be used to reduce leverage, which could also put Nestle in a position for acquisitions.
Krispy Kreme’s Tech-Driven Turnaround Plan Is Hitting the Limits of Automation
As Krispy Kreme attempts to rebound from a period of missed sales targets and profit losses, the company is trying to boost efficiency.
However, it’s found that some tasks still require human hands – while machines can mix and glaze, they struggle with designs.
It’s difficult to automate without harming the quality of the donuts.
Kroger Cuts Forecast as Inflation, Food Competition Heat Up
Kroger Co. trimmed its annual sales guidance due to heightened inflationary concerns and fierce competition for grocery spending.
The company expects comparable sales excluding fuel to gain as much as 0.8%, lower than its previous forecast calling for a high of 2% growth.
Kroger is seeking to capture market share by lowering prices, improving store services and investing in the company’s workforce, and is also looking to boost online sales.
Senators Ask FTC to Probe Walmart and Amazon Over Bots’ ‘Made in America’ Data
The Wall Street Journal
Sens. Tammy Baldwin and Rick Scott asked the FTC to investigate how Amazon and Walmart’s AI shopping chatbots discuss “Made in the USA” claims.
The senators said the chatbots may obscure and suppress information about which products are made in the U.S. or falsely claim to be.
A July report from Columbia University’s Center for Law and the Economy said Amazon’s Alexa and Walmart’s Sparky sideline American-origin data.
The Wellness M&A Hot Streak Shows No Signs of Slowing Down
Procter & Gamble announced its acquisition of supplement brand Thorne for $3.8 billion, part of a wave of high-profile acquisitions in the wellness space.
It's another strong signal that large CPG conglomerates are increasingly seeking out science-backed, high-growth brands to add to their portfolios as consumer priorities shift toward longevity, functional health, and the nutritional demands of the growing GLP-1 user base.
Mike Ross, PwC’s U.S. consumer markets deals leader, said that as consumer behavior shifts toward better-for-you products, large CPG conglomerates are adapting their portfolios by acquiring buzzy wellness brands.
About NP Capital Advisors
NP Capital Advisors is a next-generation investment bank and consulting firm founded by a team of experienced entrepreneurs, bankers, and attorneys who have built, operated, and sold successful businesses. The firm offers tailored solutions across M&A, restructuring and turnarounds, and strategy and growth consulting in a variety of sectors. With a performance-driven fee structure and a track record of delivering exceptional results, NP Capital Advisors is dedicated to helping founder-led and emerging growth businesses maximize value and overcome challenges.
This newsletter is for informational purposes only and does not constitute financial, legal, or investment advice.
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