If you're running an eCommerce business, you know that healthy cash flow is crucial. After all, without it, your business can't buy inventory, pay employees, or cover other important expenses.
That’s why it’s essential for eCommerce businesses to understand how to effectively manage and increase cash flow. In this article, we will discuss six tips that can help you increase cash flow as an eCommerce business owner.
We'll provide practical examples of ways to improve cash flow so you can start implementing them right away and see results quickly. So let's get started!
One of the best ways to improve cash flow is to simply get paid faster.
Whilst that may well be easier said than done, there are a few different options you can explore.
When it comes to eCommerce, the platform you select can have a huge impact on improving cash flow. Make sure you consider potential payment methods, customer service options, and shipping fees when deciding which platform to use.
For example, if you sell on Amazon you'll have to work with its delayed bi-weekly payout frequency. This can cause cash flow challenges if you are selling through inventory at a fast rate and are having to wait several weeks for the payouts.
Platforms like Shopify or WooCommerce on the other hand will pay funds into your account daily with a delay of just a few short days.
Pre-order campaigns can be a great way to drive anticipation for your new launches and increase cash flow at the same time.
With pre-order campaigns, you can generate revenue from customers before you even produce or ship the items. This allows you to cover some of your upfront costs and hold on to more cash in your business.
You can use a crowdfunding platform like Kickstarter or Indiegogo, or run the campaign directly to an existing brand audience.
If you are wondering how to improve cash flow quickly? An option is selling your products wholesale, consider offering discounts to customers or distributors who pay quickly. This can be a great way to encourage people to make their payments faster and help you get paid quicker.
You could offer a discount of up to 10% off the total cost of their order if they pay within a certain timeframe.
One of the most effective ways to improve your cash flow is to improve inventory management.
This means having enough inventory on hand to meet customer demand but not so much that you're tying up too much capital in stock. One way to achieve this is to use just-in-time inventory management, which ensures that you only have the inventory you need on hand and no more.
In the early stages of your business, you can get away with managing this in an Excel or Google sheet.
However, as you begin to grow, I'd highly recommend exploring software tools that help automate the process of sales velocity tracking, inventory forecasting, and purchase order creation.
We use software each week to help us make real-time inventory decisions and keep our stock levels lean whilst also avoiding stockouts.
Improving cash flow for your eCommerce business is not all about increasing revenue; it's also about reducing expenses. Take a close look at your business's expenses and see where you can cut back.
You may be surprised how much money you can save by making small changes like switching to a cheaper payment processor or negotiating better terms with service providers.
You do have to be careful not to cut back on growth - get too aggressive with cutbacks and you may find yourself starving your business of the oxygen it needs to grow.
However, for most of us, there are things our business is paying for that aren't strictly necessary. One of the systems I have in place - and highly recommend you incorporate if you’re not doing so already - is a quarterly software audit.
Recurring subscriptions are a dangerous liability if not reviewed over time as they can so easily go unnoticed (and unused!) for many months on end. So, at the end of each quarter, be sure to take some time to review the software and services you're subscribed to and cut those which you no longer need.
If you're looking for a quick and easy way to increase cash flow, consider increasing your prices.
Of course, this isn't something you want to do arbitrarily; make sure that any price increases are justified and in line with what your competitors are charging. One way to do this is to look at your margin and make sure that you are making a sufficient profit on each sale. If not, then a price increase may be in order.
You can also consider adding new services or additional features to justify the higher prices and add more value for your customers, being sure to communicate any price increases to your regular customers in advance so there are no surprises.
In an inflationary environment most customers understand the need to increase prices periodically, so as long as you explain why the increase is necessary and try to keep it reasonable, most customers will understand.
Finally, another way to improve your eCommerce cash flow is to negotiate improved payment terms with suppliers. This may mean asking for extended payment terms or a discount for paying upfront.
Most suppliers will initially be reluctant to offer any significant discount to your unit pricing but may be more open to extended payment terms.
For example, we have revisited payment terms with one of our main suppliers several times. Eventually, we secured payment terms of a 10% deposit up front, with the entire remaining 90% balance paid one month after stock arrives with us.
As you can imagine, terms like these really help improve cash flow. Whilst you might find it hard to get terms this good, it's always worth seeing if you can swing things gradually your way.
If you're on a 30% deposit / 70% balance agreement, see if you can move that to 20%/80% and keep building trust with your supplier from there and note in your diary to revisit the topic again in 3-6 months to see if you can improve things further.
If used correctly, lines of credit or loans can give you the extra boost of cash you need to help improve your eCommerce cash flow.
However, it's important to use these tools wisely; if not, you could find yourself in debt quickly. Be sure to carefully consider whether or not taking out a loan or line of credit is right for your business before making any decisions.
If you need cash to cover your costs, but can't or don’t want to commit to traditional borrowing, you can also consider introducing short-term invoice factoring into your business.
Invoice factoring means you can get cash for your invoices immediately and not have to wait weeks or even months for payment from customers. You can also find lenders who will lend against Shopify or Amazon receivables which can greatly improve your cash flow.
Cash flow is important for any eCommerce business - after all, without cash flow, it would be difficult (if not impossible) to keep the lights on and cover other expenses such as inventory and employee salaries.
By following the tips above, you can help ensure that your eCommerce business has a healthy cash flow which will facilitate long-term success.