Of critical importance to our retailers is the ability to manage their typically single largest investment in inventory.
This week I thought that I would share some of the Key areas that we look at when assessing the fitness of the inventory to accounts cycle.

We often take a look at these two accounts as part of the Fiscal physical™ at the sequential and year-over-year trends in both inventories and accounts receivable. Typically over this period a “fit” business will show these two accounts growing at about the same pace as the revenue line.  If inventories are growing at a faster rate than revenues, it may indicate that the company is unable to sell some of their categories of merchandise. When this happens companies are usually left with just two options: They can either markdown the merchandise to a lower low price point and sacrifice margins, or they can write off the merchandise altogether which also could have a significant adverse impact on business earnings.

If receivables are growing at a faster rate than revenues, it may indicate that the company is not getting paid on a timely basis. This may lead to a deceleration in sales in some future period and or subsequent pressure on cash flows and available investment into the business

Therefore we recommend that the ratios of accounts receivable to sales and accounts payable to sales revenue are monitored as one of the “fit for business™ “ indicators in assessing and lifting your business Fitness.