Days inventory outstanding: how long your cash is stuck in stock

Every pound tied up in stock is a pound that cannot pay a supplier, cover a payroll run or fund the next reorder. Days inventory outstanding (DIO) is the number that tells you how long that money stays locked in the warehouse — and it is one of the few inventory metrics that translates directly into cash.

What days inventory outstanding measures

DIO is the average number of days it takes to turn your inventory into sales. Buy stock on 90-day payment terms, sell it in 120 days, and you have funded a month of somebody else's inventory out of your own bank account.

It is usually read alongside two other figures:

• Days sales outstanding (DSO) — how long customers take to pay you.
• Days payable outstanding (DPO) — how long you take to pay suppliers.

Together they make up the cash conversion cycle. DIO is the part of that cycle you control most directly, because it depends on what you buy and when, not on how fast a customer pays.

The days inventory outstanding formula

The standard calculation is:

DIO = (average inventory ÷ cost of goods sold) × 365

Average inventory is the average of your opening and closing stock at cost over the period. Use cost of goods sold (COGS), not revenue — mixing in retail prices is the most common way this number comes out wrong.

If you prefer working from what you sell rather than what you spend, the same idea works with inventory turnover:

DIO = 365 ÷ inventory turnover

A worked example

These figures are illustrative. Say a brand carries average inventory of £120,000 at cost and its COGS for the year is £480,000:

• DIO = (120,000 ÷ 480,000) × 365 = 91 days

Ninety-one days means that, on average, stock bought today is sold in roughly three months. If that brand's suppliers want payment in 30 days, there is a 61-day gap the business has to fund. On £480,000 of annual COGS, that gap is roughly £80,000 of working capital sitting in stock.

That is the sentence worth putting in front of a founder: not "our DIO is 91", but "our DIO is 91 and we are financing 61 days of it ourselves".

What counts as a good DIO

There is no universal benchmark. A brand selling perishable goods or fast-moving basics should run a much lower DIO than one selling made-to-order furniture or a wide size range. What matters is the direction of travel and the comparison:

• Your own DIO last quarter and last year.
• DIO by category, not just in total — a healthy average can hide one range that never sells.
• DIO against your payment terms, which is where the cash impact actually shows up.

A rising DIO with flat sales is the pattern to catch early. It usually means a reorder was placed on optimism rather than on sell-through, and the cost lands two or three months later when the supplier invoice is due.

How to bring DIO down

• Order against sell-through, not last year's total. Past sales flatter you when a range has declined since.
• Cut dead stock deliberately. Discounting slow lines is painful, but it converts stock into cash and lowers average inventory for the next period.
• Split large purchase orders. Where MOQ allows, two smaller orders hold less stock and keep more cash available.
• Use preorders and deposits. Customer cash before you buy reduces the amount of the order you have to fund.
• Plan the reorder against the bank balance. A reorder that improves sell-through but empties the account is not a win.

Where DIO sits in your planning

DIO is a stock metric and a cash metric at the same time, which is why calculating it in a spreadsheet and planning reorders in a separate tool tends to lose the thread. Cushion is built for that gap: it consolidates cash flow forecasting and stock management for Shopify and ecommerce brands, reading your bills, balances and payment terms so a reorder decision can be tested against the cash position it will land in.

FAQ

Is days inventory outstanding the same as inventory turnover? They describe the same thing in different units. Inventory turnover counts how many times stock cycles in a period; DIO converts that into days. DIO = 365 ÷ inventory turnover.

Does DIO include work in progress? For most ecommerce brands inventory is finished goods, so DIO uses total inventory at cost. Manufacturers often report finished goods and WIP separately, because the two behave very differently.