Inventory Is Up. Is the Credit Line Hiding the Problem?

Imagine this.

A distributor has a vendor payment due next Friday and payroll three days later. Sales look steady, but the bank balance is lower than the owner expected. The owner asks the advisor to arrange a $75,000 draw on the company’s credit line.

“We just need to get through the next two weeks. Can we borrow it?”

The balance sheet adds another fact: inventory has increased by $110,000 in two months. Some of it supports signed customer orders, but some has not moved in more than 90 days, and the purchasing system is still set to reorder it.

The advisor has two jobs before calling the banker. Find out whether this is a short timing gap or an inventory problem that borrowing would hide. Then put the possible cash sources and the proposed loan draw on actual dates.

This is an explicitly framed composite with instructional numbers, but the decision is common. A line of credit can carry good inventory through a normal cash cycle, or it can give slow inventory more time to consume cash.

A national inventory increase is a reason to inspect

On August 27, the U.S. Census Bureau reported that wholesale inventories reached an estimated $959.1 billion in July, up 1.3% from June and 5.7% from July 2025. Retail inventories were estimated at $838.5 billion, up 0.7% for the month and 3.8% from a year earlier.

The estimates are adjusted for seasonal and trading-day differences but not for price changes. They come from sample surveys and are advance figures subject to revision. They do not tell us whether one company’s higher inventory came from more units, higher costs, planned demand, or stock that stopped selling.

The obvious reaction is to say businesses are carrying more inventory. The useful question in a client meeting is narrower: Which part of the client’s inventory has a credible path back to cash?

Find the stock that lost its cash plan

Start with the $110,000 increase. Split the change between unit volume, landed cost, new product, seasonal purchases, returns, write-offs, and mistakes in the records. A larger dollar balance does not always mean the company bought the same percentage more units.

Then build an inventory-to-cash view by item or product group. Record the quantity on hand, landed cost, age, units sold during the last 13 weeks, open customer orders, purchase orders still coming, return rights, and the earliest realistic cash receipt date.

That last date matters. An item tied to a signed order can still create a cash gap if the supplier gets paid this week and the customer usually pays 45 days after shipment.

An item with no recent sale needs a different conversation. Check whether the company can return it, cancel the next order, transfer it, bundle it, or sell it at a lower price. Each action has a different cash amount and date.

Do not let the aging report make the decision by itself. Ninety-day inventory may be normal for a seasonal or specialized item. Thirty-day inventory may already be a problem if demand disappeared and another shipment is on the way.

Put recovery actions beside the loan draw

Return to the composite distributor. Its inventory rose from $530,000 to $640,000, an increase of $110,000. The review finds $35,000 of landed-cost inventory that the supplier will take back for a cash refund, less a 10% restocking charge.

That return would produce $31,500 in cash. Another group of items, carried at a $48,000 cost, is tied to signed orders expected to create $72,000 of customer receipts in four weeks. The remaining $27,000 of the increase has no confirmed order and includes items that have not sold in 90 days.

None of those amounts is cash today. The return needs approval, shipping, and a refund date. The customer receipts depend on shipment, acceptance, invoicing, and the customers’ actual payment patterns.

Put those dates into the 13-week cash forecast. Add the $75,000 credit-line draw as a separate choice with its funding date, interest, fees, repayment terms, and borrowing limit.

Now compare the low point under several actions and ask what happens if the vendor refund arrives a week late. What happens if the largest customer pays on its normal date instead of the invoice due date? Does the business still need the full draw, a smaller draw, or a change to the vendor payment plan?

The arithmetic is not the recommendation. It shows what must happen before the shortfall closes.

Use FIX to keep borrowing tied to the cause

Find the exact decision: whether to draw $75,000 before next Friday’s vendor payment. Avoid turning the meeting into a general debate about debt or inventory.

Identify what created the gap. In the composite, part of the inventory has near-term demand, part can be returned, and part has lost its cash plan. The advisor should also check purchasing controls so another automatic reorder does not refill the shelf after the old stock moves.

Then eXecute a response with an owner and review date. The answer might include the line draw, but the borrowing should be tied to named receipts, a repayment date, and the corrective work on slow stock.

The cash conversion cycle gives useful background, but averages can hide the exact item causing the pressure. The operating record should show which stock is expected to turn, which action releases cash, and when the result will be checked.

Go back to the two-week gap

The owner may still borrow. If the line carries verified customer orders through a normal collection period, the records should show that. If it protects stock with no demand plan, the advisor needs to say so before more debt reaches the bank account.

Before you borrow around inventory, show when that inventory becomes cash.

Clear Path To Cash Advisor helps advisors keep the issue, verified drivers, possible actions, modeled cash effect, and review condition in one working record. The system supports the process while the advisor checks the inventory facts and leads the decision.