From a cash flow perspective, it doesn’t usually get any better than retailing. In a perfect world, everything purchased from suppliers would be on net 30 terms and inventory would turn more than 12 times per year. In this scenario, the customer would be buying the product (usually in cash) from the company before the company paid for it.
At -15 days (fifteen days prior to the sale) $20 is paid – this could be phone expense, wages (related to purchasing or receiving the product), etc.. At 0 days (the day the sale happens) another $17.50 is paid out in expenses related to this sale. Once again, this could be wages, advertising, or any other non-product expense. The sale was in cash, so $150 is received from the customer, putting the retailer at a $112.50 positive cash position (150-20-17.50). At +15 days (fifteen days after the sale) the product that was sold is paid for at $75 and another $7.50 is paid in related expenses, leaving a net cash increase of $30, which is equal to the net profit on the sale.
As you can see, in an ideal situation, only minor expenses are paid for prior to the sale. This example is only an example – many retailers have significantly lower turns and have to carry those costs in advance of a sale. This is the reason that the Finance Department is always pressuring Operations to reduce inventory and many deep discounts can be found on slow moving inventory. It is also the reason that many retailers fail – too much cash was tied up in slow moving inventory and the business found itself undercapitalized.