FBA Cash Reserve: How Much Working Capital to Keep | Inventory Hero
·5 min readCash Flow
FBA Cash Reserve: How Much Working Capital to Keep
How much cash reserve an Amazon FBA seller should keep: sizing it to one reorder cycle, a worked example, and why lead time and season change the number.
A useful floor is enough to fund one full reorder cycle of your top SKUs without relying on incoming Amazon disbursements. Size it from your actual order values and lead time rather than a flat percentage: sellers with long overseas lead times need more because more cash is tied up in transit at once. The goal is never being forced to skip a reorder on a healthy SKU.
Why do I need a cash reserve if my business is profitable?
Because profit and available cash are not the same. You pay for inventory months before Amazon pays you for selling it, and a reserve bridges that gap so a supply delay or a sales spike does not force you to skip a reorder. Without one, a profitable business still stocks out because the cash was committed elsewhere when the reorder came due.
Andrew Erickson is the founder of Inventory Hero. He has spent years working with Amazon FBA sellers on demand forecasting, restock planning, and the cash flow side of running a private-label brand. Inventory Hero exists because every spreadsheet-based inventory system he tried eventually broke — usually right before Q4.
Keep it in a separate account from your operating cash so it is not accidentally spent, ideally somewhere liquid but earning interest, like a high-yield business savings account. The key is that it is untouchable for anything except funding scheduled inventory purchases, so it is there when a reorder comes due.
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An FBA cash reserve is the pool of working capital you keep specifically so you can buy inventory on schedule instead of scrambling for it. Its whole job is to bridge the gap between paying your supplier and collecting from Amazon, so a supply delay or a sales spike never forces you to skip a reorder on a product that is selling. The short version: size it to one full reorder cycle of your top SKUs, hold more if your lead times are long, and build it ahead of your seasonal buy. Below is how to size and hold it.
The reserve is not spare cash and it is not profit you are saving; it is committed working capital with one purpose. Because you pay for inventory months before Amazon disburses the proceeds of selling it, there are stretches where your available cash cannot cover the next order even though the business is profitable. The reserve covers those stretches.
Treated that way, it changes how the business feels: reorders become a calendar decision (when does this SKU need stock?) instead of a cash decision (can I afford it right now?). That is the entire point.
The practical floor is enough to fund one full reorder cycle of your top SKUs without touching incoming Amazon disbursements. To size it:
List your top SKUs by sales, the ones a stockout would hurt most.
Add up their next reorder cost at landed cost, the cash you would need to place those orders.
Multiply by how many orders are in flight at once. With a long lead time, you may have this order and the next both committed before the first has sold through. As a rough multiplier: cycles in flight ≈ (lead time days + safety-stock days) / your order cycle length. A 30-day domestic lead time on a monthly reorder is near 1.0; a 60-day overseas lead time where you reorder every 45 days is closer to 2.0.
Say your top SKUs cost 40,000 dollars to reorder at landed cost, and your lead time is long enough that you typically have roughly 1.5 order cycles committed at any time:
Input
Value
Top-SKU reorder cost
$40,000
Order cycles in flight
~1.5
Reserve floor
40,000 x 1.5 = $60,000
That 60,000 dollars is the floor that keeps you reordering on schedule regardless of when Amazon pays. Size it from your own order values, not a flat percentage of revenue, because the number that matters is what your reorders actually cost.
As a sanity check on the result, many established multi-SKU FBA sellers run a reserve somewhere in the range of one to two months of COGS.1 If your floor works out well under that, it is probably too thin for your lead time; well above it may mean cash sitting idle that could fund growth. Treat it as orientation, not a rule, and let your actual reorder calendar set the number.
The longer your lead time, the bigger the reserve you need, because more cash is tied up in transit at any moment:
A short domestic lead time means cash comes back before the next order is due, so a smaller reserve suffices.
A long overseas lead time means you often have two orders committed at once (goods on the water plus the next order placed), which can double the cash locked up.
This is the same force that drives your cash conversion cycle: long inventory-in-transit days mean more working capital frozen, and the reserve has to cover it.
For seasonal sellers, the largest cash event of the year is the pre-Q4 inventory buy, often placed in summer for stock that will not sell until the fourth quarter. That single buy can dwarf a normal reorder, so:
Build the reserve in the slower months ahead of it, treating the Q4 buy as a planned drawdown.
Do not rely on Q4 sales to fund the Q4 buy; the timing is backwards, you pay first and collect months later.
A reserve that is fine for routine reorders can still be too small for the seasonal spike, so plan the peak separately.
You will feel an undersized reserve before you can measure it. The tells:
You delay a reorder waiting for a disbursement, letting days of supply run down on a healthy SKU because the cash is not there yet.
A single supply hiccup cascades. A factory delay or a customs hold forces you to choose which SKU to restock, because you cannot fund both.
You cannot commit to the seasonal buy without a loan, even though the sales history clearly justifies the order.
If any of these are familiar, the reserve is undersized for your lead time and order values. The fix is to rebuild it in the slower months, funded by clearing slow movers and tightening order quantities, so the next tight moment does not force a stockout. A reserve is a bridge, though, not a cure: if the squeeze keeps recurring, the underlying inventory cash-flow problem needs fixing too, and it is worth funding the highest-contribution margin SKUs first when the reserve is tight.
Keep the reserve in a separate account from operating cash so it does not get spent by accident, ideally somewhere liquid but earning interest, such as a high-yield business savings account. The discipline matters more than the vehicle: the reserve is untouchable for anything except funding scheduled inventory. If you are dipping into it for operating expenses, it is not a reserve, it is just cash, and it will not be there when the reorder comes due.
An FBA cash reserve is working capital sized to one reorder cycle of your top SKUs, held separately and reserved solely for buying inventory on schedule. Size it from real order values, hold more when lead times are long, and build it ahead of the seasonal buy. Paired with a shorter cash conversion cycle, it is what stops a profitable business from stocking out. It is a core piece of your wider FBA cash flow system.
The one-to-two-months-of-COGS range is an operator rule of thumb, not a measured or Amazon-published figure. The right reserve depends on your lead time, order values, and seasonality; size it from your own reorder calendar and use the range only as a sanity check. ↩