I have sat in this exact seat. At Liquiproof we went from a standing start to 3,000 plus retailers, and the hardest month of that entire run was not a month where sales dropped. It was a month where sales were the best they had ever been and I could not pay for the next production run. Growth eats cash. Nobody tells you that when you are celebrating a record week.
This is the piece I wish someone had handed me back then. What the cash gap actually is, how to shrink it before you borrow a penny, and how to choose between inventory finance, revenue-based finance, a bank line and equity when you do need outside money.
The cash gap is a timing problem, not a profitability problem
You pay your manufacturer today. The stock arrives eight weeks later. It sells over the following ten weeks. Your payment processor holds the money for a few days more. Somewhere in the middle of that sequence you have to order the next run, and you have to order more of it than last time because you are growing. That is the whole trap in one paragraph.
The formal version is the cash conversion cycle: days inventory outstanding, plus days sales outstanding, minus days payable outstanding. Most DTC brands sit somewhere between 60 and 120 days. At a 60 day cycle you have roughly 164,000 GBP of cash locked up for every 1m GBP of cost of goods. At 120 days that figure roughly doubles. A brand turning over 1m GBP a month usually needs somewhere between 600,000 and 900,000 GBP of working capital just to stand still.
Read that again and notice what is absent from it. Nothing about your conversion rate. Nothing about your ROAS. A perfectly profitable brand with a 45 percent contribution margin can run out of money while every single one of its marketing metrics is improving. The P&L says you are winning. The bank balance says you are drowning. Both are telling the truth.
Profit is an opinion formed over twelve months. Cash is a fact that arrives on a Tuesday. Brands do not die of low margins. They die of a payment they could not make on a date they knew about six weeks in advance.
Why founders reach for equity, and why it is usually the wrong answer
Equity is the loudest form of capital. It comes with an announcement, a valuation and a sense that you have arrived. It is also the most expensive money you will ever take, because you pay for it every year forever rather than over an eighteen month term.
Inventory does not deserve equity. Stock is a repeatable, forecastable, short-cycle cost with a return you can calculate before you spend it. That profile is exactly what lenders want and exactly what equity investors should not be funding. When you sell 15 percent of your company to buy stock you will buy again next quarter, you have converted a temporary timing gap into a permanent reduction in your ownership.
Equity earns its place on genuine one-way bets. A new product line with an unproven demand curve. Entry into a market where you will spend eighteen months before you learn anything. An acquisition. Those are decisions where the downside is real and shared risk makes sense. Reordering your hero SKU is not one of them.
Fix the cycle before you fund it
Every day you remove from your cash conversion cycle is capital you never have to borrow. This work is unglamorous, it costs nothing, and in most brands I look at it releases more cash than the facility they were about to apply for. Do it first.
Extend supplier terms (DPO)
This is the single largest lever and almost nobody pulls it hard enough. Moving from payment on order to 30 day terms, or from 30 to 60, is a direct transfer of working capital from your supplier's balance sheet to yours at a cost of zero.
The conversation is easier than founders expect once you have a track record. Suppliers care about volume predictability far more than payment speed. Give them a rolling twelve week forecast and a consistent order pattern, and terms become a reasonable ask rather than a favour. If your supplier will not move, ask what would need to be true for them to move. Usually it is volume commitment, not creditworthiness.
Cut days inventory outstanding (DIO)
Most brands are not short of cash. They are short of cash because it is sitting in the wrong SKUs. The tail of your range is usually where the money is buried: variants that contribute a small share of revenue but occupy a disproportionate share of the stock value and the warehouse.
Rank every SKU by cash contribution per unit of stock value held, not by revenue. The ranking will surprise you. Then make hard decisions about the bottom quartile. Discontinuing a slow variant is not a failure of ambition, it is a decision to point your capital at the products that actually pay you back.
Shorten collection time (DSO)
For a pure DTC brand this is mostly about processor payout schedules, which are negotiable at scale and worth checking annually rather than assuming they are fixed. A shift from seven day to two day settlement is free money sitting in a support ticket.
The moment you add wholesale, DSO becomes the dominant number in the equation. Retail buyers pay on 60 or 90 day terms, sometimes longer, and a large first order from a major account can be the thing that breaks a growing brand rather than the thing that makes it. Price that delay into the deal before you sign it, not after.
The four types of growth capital, and what each one is actually for
Once the cycle is as tight as you can make it, the remaining gap is a financing decision. Match the instrument to the use, and the cost of capital stops being frightening.
| Instrument | Typical all-in cost | Right use |
|---|---|---|
| Bank asset-based line | 7 to 10 percent | Recurring inventory at 5m GBP plus, if you can meet the covenants |
| Fintech inventory line | 15 to 30 percent | Inventory when speed matters more than price |
| Revenue-based finance | 20 to 40 percent | A specific campaign or production run with proven contribution margin |
| Equity | Permanent dilution | New products, new markets, acquisitions, genuine one-way bets |
The headline rate is not the decision. The decision is whether the contribution margin on the thing you are funding clears the cost of the money with room left over. Capital at 25 percent annualised deployed against a production run carrying a 45 percent contribution margin, turning three times a year, is straightforwardly good business. The same capital deployed against an 18 percent margin is a way of losing money faster and with more paperwork.
One more discipline. Qualifying for a large facility is not a reason to draw a large facility. Undrawn capital costs you very little. Drawn capital sitting in an account is a fee you are paying for the comfort of seeing a number. Take what the next two production runs require and no more.
What this looks like in practice
A supplement brand I work with came to me convinced they needed to raise. They were doing just under 400k GBP a month, growing steadily, and every quarter felt tighter than the last. The plan on the table was a seven figure round to fund inventory and paid media.
We mapped the cash conversion cycle before touching the deck. It came out at 104 days. Three things moved it. Their manufacturer agreed to 45 day terms in exchange for a rolling forecast and a minimum quarterly commitment. Eleven SKUs in the bottom quartile of cash contribution were discontinued, which released stock value and simplified forecasting. Their processor payout window was reduced after one phone call that should have happened two years earlier.
The cycle landed at 61 days. The remaining gap was funded with a modest inventory line rather than a round. They kept the equity, and the money they did take was pointed at production runs with a known return rather than at a general sense of needing more runway.
Inside the system
How we build this for brands
The first thing we build for a brand with a cash problem is a live profit and cash-flow dashboard pulled from real Shopify and ad platform data rather than a spreadsheet someone updates when they remember. On top of it sits a reporting agent that runs weekly and surfaces the things that quietly move the cycle: stock ageing past its expected sell-through, a SKU whose cash contribution has turned negative, a supplier payment landing in the same week as a large media commitment. Most cash surprises are visible three weeks before they hurt, and almost nobody is looking.
Alongside it we work the demand side, because the cheapest working capital is a customer who buys again. Lifecycle flows built and deployed in Klaviyo by AI, replenishment sequences timed to actual consumption rather than a guess, and a VOC engine that mines reviews and support conversations into the positioning and creative that lift conversion on stock you have already paid for. Part of this runs live for portfolio brands today; the full system is what we deploy when we take a brand on.
Cash Flow Audit
Find Out How Much Cash Your Cycle Is Holding Hostage
I will map your cash conversion cycle, show you where the capital is trapped, and tell you honestly whether you have a financing problem or an operating one. Most brands find they need far less outside money than they thought.
Book Your Cash Flow AuditFrequently asked questions
What is the cash conversion cycle for a DTC brand?
The cash conversion cycle is the number of days between paying your supplier and collecting the cash from selling that stock. The formula is DIO plus DSO minus DPO. Most DTC ecommerce brands run a cycle of 60 to 120 days. At a 60 day cycle you tie up roughly 164,000 GBP of cash for every 1m GBP of COGS. At 120 days that figure roughly doubles, which is why growing brands often feel poorer the faster they grow.
Should a DTC brand use equity to fund inventory?
Almost never. Equity is the most expensive capital you will ever raise because you pay for it forever. Inventory is a repeatable, predictable, short-cycle cost with a known return, which makes it a debt problem rather than an equity problem. Reserve equity for genuine one-way bets: new product development, a new category, a market entry, or an acquisition.
What does inventory financing cost for an ecommerce brand?
For a 5m to 50m GBP brand, an asset-based line from a bank typically prices around 7 to 10 percent all in. Fintech inventory lines and revenue-based financing generally run 15 to 30 percent annualised, sometimes higher, because you are paying for speed and looser covenants. What matters is whether the contribution margin on the stock being funded clears the cost of the capital with room to spare.
When is revenue-based financing a bad idea for a DTC brand?
When it is covering a hole in the unit economics rather than funding something that already works. If your contribution margin per order is 18 percent and your capital costs 25 percent annualised, you are borrowing to lose money faster. It is also a poor fit for ongoing operating costs such as salaries and retainers, because those do not produce a discrete return you can point the repayment at.
How do I shorten my cash conversion cycle before raising capital?
Three levers. Reduce days inventory outstanding by tightening forecasting and cutting the slow-moving tail of your range. Reduce days sales outstanding by shortening processor payout windows and chasing wholesale receivables properly. Increase days payable outstanding by negotiating supplier terms, usually the largest and cheapest single win available. Every day removed from the cycle is capital you never have to borrow.
How much working capital does a 1m GBP per month DTC brand need?
As a broad planning figure, around 600,000 to 900,000 GBP, with the exact number driven by gross margin, lead time and supplier terms. A brand with 70 percent margins, 30 day lead times and 60 day supplier terms needs far less than a brand with 45 percent margins, 120 day sea freight and payment on order.
About the author
Caner Veli is a DTC operator who has helped 350+ brands fix broken growth engines. He built Liquiproof from zero to 3,000+ global retailers in under 6 years. He now runs the same playbook, supported by AI systems he built himself, for DTC and CPG brands.