How long does your stock sit on the shelf before it turns into revenue? In 2025, the answer could make or break your business.
For Australian companies navigating cost pressures and evolving supply chains, understanding the average age of inventory isn’t just a textbook metric—it’s a competitive advantage. With new tax implications and tightening lending standards, inventory management is under the microscope like never before. Here’s what you need to know.
What Is Average Age of Inventory?
The average age of inventory measures the average number of days items remain in stock before being sold. It’s a key indicator of how efficiently a business manages its inventory. The calculation is simple:
- Average Age of Inventory = 365 / Inventory Turnover Ratio
Where the inventory turnover ratio is the cost of goods sold divided by the average inventory for a period. The lower the average age, the faster you’re converting stock into sales and cash.
Why It Matters in 2025: Tax, Lending & Supply Chain Pressures
Australian businesses are facing a perfect storm in 2025:
- Taxation updates: The ATO has ramped up scrutiny of inventory valuations, especially with the new instant asset write-off thresholds. Holding old stock could limit your deductions.
- Lending standards: Banks and non-bank lenders are increasingly asking for inventory age reports before approving business loans or trade finance. Stale inventory can hurt your borrowing power.
- Supply chain volatility: Ongoing disruptions mean businesses are balancing the risk of overstocking (to avoid shortages) against the risk of tying up too much capital.
Consider a Melbourne-based electronics retailer. In 2023, they held an average of $500,000 in inventory, turning it over four times per year (average age: 91 days). By 2025, supply chain delays led them to over-order, dropping turnover to three times per year (average age: 122 days). The result? Increased holding costs, cash flow stress, and a flagged loan application when seeking expansion finance.
Strategies to Lower Your Average Age of Inventory
If your average age is creeping up, it’s time for action. Here are practical steps Australian businesses can take in 2025:
- Leverage data analytics: Modern inventory software can track SKU-level turnover and highlight slow-moving items. Many Australian SMEs are adopting cloud-based solutions that integrate directly with accounting and POS systems.
- Negotiate with suppliers: Push for smaller, more frequent orders. Many suppliers in 2025 are offering flexible terms in response to uncertain demand.
- Run targeted promotions: Use flash sales or bundled offers to clear old stock before it becomes obsolete, especially in sectors like fashion or tech.
- Rethink your product mix: Regularly review your inventory for items that are consistently slow to move. Consider dropping underperformers or switching to consignment models.
For example, a Brisbane-based homewares distributor analysed their average age of inventory by product line and discovered that seasonal décor items lingered for over 200 days. By negotiating better buy-back agreements with suppliers and running end-of-season clearance events, they slashed their average age to 130 days within six months—freeing up over $100,000 in working capital.
Benchmarking: What’s a Healthy Average Age?
There’s no universal “good” average age of inventory—it varies by industry. According to 2025 IBISWorld data:
- Supermarkets: 20–35 days
- Apparel retailers: 60–120 days
- Automotive parts suppliers: 90–180 days
Regular benchmarking against industry peers and past performance is crucial. If your figure is rising year-on-year, it’s time to investigate.
Looking Ahead: Inventory Age and Business Resilience
With the Australian economy still adapting to global supply chain shifts and evolving consumer habits, keeping a close eye on inventory metrics is essential for resilience and growth. The average age of inventory is more than a number—it’s a window into your business’s agility, cash flow health, and ability to meet changing demand.
