NPCA Newsletter: Cash Me If You Can Part Two: Why Your Cash Is Stuck On a Pallet (Part 2 of a 3-Part Series)
Newsletter article summary: Once product is made, a brand's cash stays frozen in finished inventory as it moves from manufacturer to 3PL to retailer, with three compounding costs (time, storage, and distance) slowing its conversion back into cash and raising the risk of markdowns and write-offs. Cutting inventory to the bone isn't the answer, though, since stockouts cost sales and shelf space, so brands should set safety stock by customer and SKU based on the fill rate buyers require and what it costs to hit it.
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Missed It? Check Out Cash Me If You Can Podcast #1: Cash Out The Door🎤
The first installment of our Cash Me If You Can podcast series, featuring Nick Desai from NP Capital and Louis Halpenny from Opply, covers how every dollar a brand spends on inventory starts a clock. You'll want to know 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.
Sign up for the Cash Me If You Can podcast series on the cash conversion cycle!
Part Two: October 22nd, 11:30AM PST/ 2:30PM EST
The second installment, featuring NP Capital and Associated Warehouses (AWI) digs into the middle leg of the cash conversion cycle, which is often the longest and least visible stretch of the journey.
Sign up for Part Two here:
Part Three: November 12th, 11:30AM PST/ 2:30PM EST
The third installment, featuring NP Capital and Promomash, discusses the moment the whole cycle has been building toward: turning inventory back into cash. But the catch is that final conversion isn't free. Trade spend, promotions, and the cost of winning shelf placement all take a bite before the money lands back in your account.
Sign up for Part Three here:
Cash Me If You Can Part Two: Why Your Cash Is Stuck on a Pallet
In our last issue, we started with a simple idea. A business turns cash into flour, flour into bread, and bread back into cash. We covered the first leg of that journey: buying raw materials and stretching your payables so the bakery isn’t funding its suppliers.
Now the bread is baked. The ovens are off, the loaves are wrapped, and the invoices from your flour supplier aren’t due for weeks. It feels like progress, but your cash hasn’t come back yet.
Follow the Loaf:
Here’s the path most consumer brands' product takes between the oven and the shelf:
Raw materials go to the manufacturer. Flour, yeast, and packaging arrive at your facility or your co-manufacturer's. They become bread.
Finished bread goes to a warehouse. Most growing brands don’t run their own distribution, and so the product moves to a third-party logistics provider (a 3PL), which stores it, picks it, and packs it.
An order comes in, and the bread ships. A retailer places a purchase order. The 3PL loads a truck, and the product heads to the retailer’s distribution center.
At every stop, your dollar is frozen. You can’t make payroll with it, fund a new SKU with it, or pay down your line of credit with it. Worse, it's also collecting costs while it waits, such as pallet fees, handling fees, and freight.
Products have expiration dates, packaging gets redesigned, and demand shifts, so the longer finished goods sit, the more likely some of them get marked down, written off, or thrown out.
The Three Costs - Time, Storage, and Distance:
When we work with operators on this stage of the cycle, we focus on three costs. Each one slows the conversion of inventory back into cash.
Time: Every day the product sits is a day the cash sits. Finance teams measure this with Days Inventory Outstanding (DIO), which in plain terms tells you how many days of product you’re carrying. A lower number means your cash comes back faster. A creeping DIO is often the earliest sign that forecasting, production scheduling, or sell-through is slipping.
Storage: Warehousing isn’t free. 3PL storage and handling fees are real, recurring spend on goods that haven't earned a dime. That spend scales with how much you hold and for how long, so every extra week of inventory carries its own storage bill.
Distance: Where you make the product often matters as much as how fast you make it. The closer production is to your end customer, the lower your freight costs and the shorter your transit times. A loaf baked in New Jersey and sold in California spends days on a truck, and your cash is riding along with it.
These three costs compound. Product that sits longer, in more places, farther from where it’s sold, becomes expensive inventory. If you can reduce the time, storage, and distance, you can convert your money faster.
The Balancing Act - Safety Stock vs. Service Level:
If lean inventory frees up cash, why not hold as little as possible?
Because running out is expensive too. Stockouts cost you sales, and they can cost you goodwill as well. Large retailers track how reliably suppliers deliver complete orders on time, and many penalize brands that miss their targets. If there are too many empty shelves, you risk losing the shelf space itself, which is far harder to win back than a single order.
Brands carry safety stock for this reason, providing a buffer against demand spikes, production delays, and late shipments. Safety stock works like insurance, but insurance has a premium. Every unit held “just in case” is cash that isn’t working.
The right question isn’t “How little inventory can we hold?” but rather “What fill rate do our buyers require, and what does it cost us to achieve it?” Some customers and SKUs justify a thick buffer, but others don’t. Brands that set one safety stock policy across their whole catalog are almost always overpaying somewhere.
Handoff - From Bread to IOU:
Kroger sends a purchase order. The truck leaves the warehouse, and you send the invoice. The bread is gone. But you don't have cash yet.
In our next issue, we follow that promise to pay: how accounts receivable are created, how to collect faster, and why the amount you bill isn’t always the amount you collect. Tune in for our upcoming podcast on October 22nd and watch out for our next newsletter.
Deal Highlights
NP Capital is advising an innovative fermented-nut snack brand on a restructuring and strategic sale engagement. The engagement aligns with the brand's mission to make gut-friendly snacking genuinely delicious through its fermented nut products. NP Capital is assisting the client with restructuring its liabilities, strengthening its financial infrastructure, and running a strategic sale process. This process positions the brand for continued growth and wider reach in the fast-growing functional snacking category.
Industry Headlines
Mattel Attracts Takeover Interest from Authentic Brands Group
Mattel (MAT.O) has been approached by Authentic Brands Group for a takeover that could value the Barbie maker at around $6 billion or more, a source familiar with the matter told Reuters on Thursday.
Authentic Brands was discussing a more than $20-a-share takeover interest. Shares of Mattel, which has a market capitalization of about $3.62 billion, closed up about 18% at $15.04 following the news.
Consumer goods companies and retailers are battling weak spending as households face higher fuel costs and interest rates in the US.
AI Agents Aim to Change Shopping. Some Retailers Are Locking the Doors
Retail brands are divided over agentic commerce, with some accommodating third-party AI shopping agents and others deliberately locking them out.
Retailers with hesitations cite concerns over controlling consumer data, the customer experience, fraudulent purchases and inventory hoarding.
Amazon blocks Meta’s Muse and other AI agents over data-privacy and security concerns, while Kohl’s and Kate Spade bar agents from completing purchases.
Nike to ‘Nearshore’ More Production as It Seeks to Shrink Itself
Nike wants to make its supply chain "more flexible, more responsive and more efficient" by producing goods closer to home and using more manufacturing and distribution partners.
The company is looking at "nearshore sourcing" for North America and the region that includes Europe, Africa and the Middle East, and will "leverage partnerships" instead of owning a large part of its fulfillment and distribution network.
Nike is under pressure to prove it can recapture growth as competition heats up and shoppers become more selective, and will offer greater details on turnaround plans during an investor day in November.
Hertz Taps PJT Partners to Extend Debt as Maturities Loom
Hertz Global Holdings Inc., the car rental company, is working with adviser PJT Partners to extend the maturities of its debt, some of which will come due in two months, according to people familiar with the matter.
PJT started reaching out to some Hertz debt investors over the past several weeks about a potential transaction known as an amend-and-extend, said the people, who asked not to be named because the discussions are private.
Hertz in June raised $350 million through an offering of convertible notes. The transaction was paired with the issuance of $100 million of shares that were designed to be shorted, which allowed buyers of the debt to hedge their investment. The company has a $200 million bond maturing on Dec. 1 that carries a 4.63% coupon as well as $2.7 billion in loans due in 2028.
AutoZone Expects Growth to Accelerate This Fiscal Year
AutoZone expects its growth to continue in the year ahead, forecasting an acceleration across each of its regions.
The company’s fiscal fourth-quarter revenue rose 5.6% to $6.59 billion, missing Wall Street expectations of $6.7 billion.
AutoZone said its do-it-yourself business saw softness as inflation-weary consumers under pressure from higher gas and oil prices deferred repairs.
About NP Capital Advisors
NP Capital Advisors offers next-generation Mergers & Acquisitions advisory, Restructuring & Liability Management, and Financial advisory. The firm was founded by a team of experienced entrepreneurs, bankers, and attorneys who have built, operated, and sold successful businesses. 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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