Liquidity Isn’t a Number. It’s a System.

Unlocking cash: from seed stage to $100M+

Most founders and even some seasoned executives mistakenly equate "liquidity" with ending cash balance. That single figure, while necessary, is merely a snapshot of where you are. It doesn’t offer predictive power regarding your resilience or strategic optionality. When you’re navigating dynamic conditions, true liquidity is a systemic capability: It’s the ability to fund essential inventory cycles while awaiting receivables, to meet payroll and opex obligations without diluting equity, and to confidently hold pricing or production schedules when external pressures arise.

I hope this essay provides a framework for creating an effective “liquidity system.” Because in today’s environment (evolving supply chain, tariff implications, changing consumer demand, and increasingly competitive ecosystem), strong liquidity isn’t just “nice to have.” It’s a fundamental differentiator between control and compromise… between having foresight and reactive scrambling.

Desired future state: engineered liquidity

Real liquidity is shaped upstream, long before it appears on your daily cash report. It's a direct by-product of how your business fundamentally operates across its core financial and operational arteries: collections, vendor payments, borrowing / credit structures, forecasting, and inventory turns. Each of these functions resides within definable systems, and this demands intentional design and constant optimization.

When you proactively design for liquidity, you create invaluable headspace:

• Peace of mind / enhanced decision quality: enable proactive, rather than reactive

• Opportunity to say “no:” whether to unfavorable terms, premature equity raises, or suboptimal hiring

• Room to wait: for the right partner, the optimal capital injection, or market stabilization

• Maintain pricing power: retain margin integrity even as competitive dynamics shift

• Optionality to invest: in key initiatives, market expansion, or strategic M&A when competitors are constrained

Below are core systems we help clients design. Feel free steal this and work with your CFO on this. And if you need a CFO, ping me directly and I’ll put you in touch with someone I enjoy working with: faheem@financewithin.com.

AR discipline: driver of cash inflow

Treating collections as mere "paperwork" is a misstep. For high-growth consumer and retail brands, AR management is a core operational function, demanding the same rigor as sales or product development. Cash doesn't flow organically; it must be actively pulled through the system. My recommendations for driving better AR performance:

• Explicit payment terms: be gently assertive with your retail partners about your AR collections. Communicate in-advance and ensure you have a game plan to abide by this.

• Create incentives: implement early payment discounts where the cost of discount is less than the cost of capital or the risk of collection. Analyze the impact of these discounts on your working capital cycle and overall profitability.

• Proactive pre-aging escalation: dont wait for invoices to hit 30, 60, or 90+ days. Initiate automated and personalized reminders before the due date, followed by rapid, structured escalation (phone calls, senior exec involvement) immediately upon delinquency.

• Institutionalized AR cadence: establish weekly AR review meeting with clear ownership. This should includes:

  • Detailed aging analysis: segmenting by customer, value, and root cause of delay.

  • Collection action planning: specific actions, owners, and due dates for every overdue invoice.

  • Monthly performance metrics: track DSO, and have a collection effectiveness index. For bad debt, don’t just write it off. Be patient. Try every avenue to collect. As a last resort, discuss potential write offs end of each quarter. Remember, AR is part of your borrowing base. Treat it as a strategic asset.

Chronically late AR signals more than a finance issue; it’s a systemic breakdown impacting customer relations and operational efficiency.

AP & vendor terms: optimize the outflow

Every day you extend your payment terms is a day your cash remains in your business, providing flexibility and reducing reliance on external financing. Yet, I observe many consumer brands, even those scaling rapidly (5X or 10X order volume), failing to optimize their AP cycles and continuing to pay on unnecessarily short terms.

Terms are a lever, always negotiable. Companies in our portfolio that exhibit strong liquidity, particularly those with scale and purchasing power, rigorously implement these practices:

• Transition from pre-payment to credit terms: systematically shift key suppliers from upfront payment requirements to Net 30 or Net 45 terms. This requires building trust and demonstrating reliable order volume. Important: this won’t happen when you’re early stage. You have to have size and scale to command attention.

• Progressive term extension: as your leverage grows (due to increased volume, longer-term commitments, or improved credit worthiness), aggressively negotiate to extend terms. This is a direct injection of working capital!

• Decoupled payment & delivery schedules: for large production runs or seasonal orders, negotiate payment schedules that are independent of (and often extend beyond) product delivery. E.g: a percentage upon PO, another upon shipment, and final payment 30-60 days after goods are received and quality-checked.

• Leverage trade credit & supply chain finance: explore and utilize third-party trade credit providers or supply chain finance solutions to extend payment terms to vendors without negatively impacting vendor relationships. This can be particularly powerful for international sourcing.

Credit facility design

A well-structured credit facility is not merely a "safety net" for emergencies; it is a powerful tool that can smooth working capital cycles and enable growth. Its utility is entirely dependent on how you design and manage. My recommendations for maximizing your credit facility:

• Match structure to working capital profile: tailor the facility type to your primary working capital needs. Is it primarily AR and inventory backed (ABL), or linked to purchase orders (PO financing)? Ensure the facility's mechanics align precisely with your cash conversion cycle.

• Aggressive advance rates & eligible collateral: negotiate for the highest possible advance rates against eligible collateral (current market: 85% on qualified AR, 50% on inventory). Understand the nuances of "eligible" collateral and work to maximize it through clean data and compliant operations.

• Clean accounting & transparent reporting: lenders extend capital based on trust and verifiable data. Maintain meticulously clean financial records and provide timely, accurate reporting. This builds lender confidence, making draw requests smoother and negotiations for better terms easier.

  • My accounting team is exceptionally good at this. We provide working papers and supporting documentation against each and every close. Down to variance by account per financial statement. If a client is going through quality of earnings (QofE) or internal audit, they typically pass with minimal to zero variance. It’s taken a lot of investment, systems design, and top notch talent to get this place.

• Timing of cash cycle: use your credit facility to bridge predictable working capital gaps (e.g., pre-season inventory build-up, peak marketing spend ahead of a major launch). Never use it to paper over consistent P&L losses or operational inefficiencies. This is a recipe for distress.

The cardinal rule of credit: The best time to secure and negotiate access to capital is when you emphatically do not need it.

If you’re gearing up to raise debt, I recently wrote a detailed essay on how to think about debt: link here.

Cash flow forecasting

As a CEO, strong and deterministic forecasting allows me to “see around corners” and anticipate future states. The quality of my decisions are directly proportional to the hygiene of our cash flow systems.

Our most effective cash forecasting systems with our clients have this common:

• Dynamic & continuous roll-forward: updated at minimum weekly, and rolled forward continuously (e.g., a rolling 13-week forecast, then a monthly 12-month outlook). This keeps the forecast current and relevant.

• Cross-functional (XFN) inputs: tied to ground-level inputs from sales (order intake, seasonality), operations (production schedules, logistics costs), and inventory (receipts, sell-through). It's not merely a "last month's budget" extrapolation.

• Robust scenario planning & stress testing: Designed with flexibility to run "what-if" scenarios. What if wholesale shipments slip by two weeks? What if a key supplier PO is delayed by a month? What if our return rate increases by 5%? Quantifying these impacts on your cash runway is critical.

• XFN visibility & accountability: made visible across leadership teams. When sales, operations, and marketing leaders clearly see how their decisions (e.g., hitting sales targets, managing freight, optimizing ad spend) directly impact the cash runway, accountability is intrinsically built into the system.

Inventory turns & working capital

For consumer brands, inventory is often the largest single sink for liquidity. Every pallet of product sitting in your warehouse or 3PL is cash that cannot be deployed elsewhere, generating returns, or buffering against uncertainty.

My recommendations for optimizing inventory plans and mitigating working capital drag:

• Channel-specific PO alignment: POs directly aligned with granular, channel-level forecasts (DTC, Amazon, key retail accounts), not just broad top-line revenue goals. Overbuying for one channel can impact another, or tie up capital unnecessarily.

• Monthly turn rate monitoring & SKU performance: measure inventory turns monthly, by SKU and category. Ruthlessly identify and address slow-moving SKUs. Institute rapid liquidation protocols (discounts, promos, alternate channels) before holding costs erode all margin and capital becomes permanently trapped.

  • Brands that prefer to not discount (due to high brand value) should be even more cautious about channel specific alignment. We have brands in our portfolio that do not discount (or very rarely discount). We work with their teams to go the extra way on merchandise planning.

• Disciplined MOQ management: be highly disciplined with MOQs. Do not overbuy simply to hit an MOQ unless the materialized cost savings outweigh the associated holding costs (storage, obsolescence risk, opportunity cost of capital). Model this out.

• Weekly inventory aging & proactive write-downs: for brands with complex inventory plans, I recommend tracking inventory aging weekly. The earlier you make difficult liquidation or write-down decisions, the less financial pain and capital entrapment you will feel.

Remember, inventory planning is not just about buying units; it is a direct capital allocation decision.

What a fragile liquidity system looks like

I come across many consumer brands. These are the immediate red flags I observe in businesses with perpetual liquidity issues:

• Funding inventory with cash up front, collecting 90+ days out: this is the quintessential working capital trap, creating a persistent cash constraint.

• Static credit line: credit facility hasn't been re-evaluated or renegotiated in over a year. Terms are stale; brand facility must evolve with scale and risk profile.

• Absence of a rolling 13-week cash forecast: this is no longer optional. It is table stakes for operational visibility and strategic planning.

• AR as a "back-office" function (for large wholesale / CPG brands, not relevant to DTC): this should be part of your weekly operating rhythm discussed in leadership meetings… otherwise, liquidity is on borrowed time.

• Inability to name top cash levers: as a CEO, you must instantly know your top three cash levers. Precisely where you would cut expenses, delay payments, or draw credit, starting tomorrow, if necessary.

Liquidity is designed, not observed.

Don’t approach liquidity as something you track and report on.

Great brands, those built for resilience and sustained growth, treat liquidity as something they design into the very fabric of their operations.

They engineer it into how they hire talent, how they forecast demand, how they structure POs, and how they negotiate with every vendor and lender. Free cash flow is beyond a metric; it is the aggregated output of thousands of deliberate, small decisions made across the entire organization, every single week.

I am always trying to become a better capital allocator. I want to push our CEOs to ask:

• Where is cash systematically getting trapped within our current processes?

• What outdated assumptions are we holding onto about our CCC that no longer serves our growth goals?

• What fundamental shifts would need to occur (operationally, financially, strategically) to buy ourselves more time, expand our margins, and create more room to breathe?

You don't need to be paranoid. But you should be prepared and be proactive.

As James Clear (from Atom Habits) says, and a quote we prominently display in our office:

"You do not rise to the level of your goals. You fall to the level of your systems."

And it is precisely these robust, intentional systems that separate companies that merely survive from brands that endure and ultimately thrive.