Free Up Tied-Up Cash

Find and unlock money trapped in inventory, prepayments, and inefficient capital use.

What this recipe is for

Identifying where working capital is parked unnecessarily—so you can free cash without harming operations or customer experience.

What you’ll get

Visibility into slow-moving or overstocked inventory

Awareness of prepaid commitments and timing mismatches

Actionable adjustments to improve turnover and liquidity

Prioritized levers to release cash quickly

Key inputs

Current inventory levels (by SKU or category)

Cost of goods held in inventory

Inventory turnover rate / days inventory outstanding

Prepaid expenses and timing (e.g., annual software, vendor prepayments)

Accounts receivable aging

Accounts payable terms

Sales velocity and seasonality

Core logic

Cash stuck in inventory or prepayments is invisible risk—revenue might look fine while liquidity tightens. Improving turnover, delaying non-critical prepayments, and aligning inflows/outflows frees cash without needing new revenue.

Step-by-step actions

Step 1: Measure inventory efficiency

Calculate Inventory Turnover = Cost of Goods Sold / Average Inventory.

Compute Days Inventory Outstanding (DIO) = 365 / Turnover.

High DIO means cash is parked too long.

Step 2: Identify slow or excess stock

Flag SKUs with low velocity or declining demand.

Audit safety stock levels—are buffers overbuilt relative to variability?

Step 3: Review prepayments and timing mismatches

List prepaid items and their benefit timelines.

Push or renegotiate non-critical prepayments (e.g., switch from annual to quarterly where possible).

Step 4: Align receivables and payables

Shorten collections (incentivize early payment) and stretch payables without damaging relationships.

Compare your cash conversion cycle: Days Inventory Outstanding + Days Sales Outstanding − Days Payable Outstanding. Reduce this cycle to free cash.

Step 5: Free trapped capital

Liquidate or discount stale inventory in controlled ways.

Reforecast demand to avoid overordering.

Renegotiate vendor terms or delay non-essential spend.

Decision thresholds / guardrails

DIO significantly above industry norm or historical average → Reduce inventory levels or improve velocity.

Large prepayments with long benefit lag → Shift to shorter terms or amortize cash impact.

Receivables aging longer than payables → Tighten collections before extending more credit.

Cash conversion cycle expanding → Diagnose which component (inventory, receivables, payables) is dragging and act.

Examples

Retail/e-commerce:

Overstocked seasonal items sit for 120 days while typical turnover is 60—move to clearance to recover cash and reduce future order size.

Service business:

Paying annual software fees upfront ties cash; switch to monthly billing or negotiate deferred start to better align with revenue cycles.

B2B supplier:

Customers paying on net-60 while you pay vendors on net-30—push for better receivable terms or offer small early-payment incentives.

Thinking checks

Where is the largest chunk of working capital parked right now?

Can any inventory be turned faster without stockouts?

Are prepayments deferrable or negotiable?

Is your cash conversion cycle improving or worsening over time?

If the answer is no…

You’re leaving cash idle—identify the worst offender (inventory, receivables, or prepayments) and act this week.

Collections lagging? Tighten terms or use reminders/incentives.

Overstocked? Run targeted clearance or adjust future orders.

What to track (minimum)

Days Inventory Outstanding (DIO)

Cash Conversion Cycle

Aging of receivables and payables

Prepaid expense schedule vs. benefit realization

Inventory write-downs or clearance impact