Paying attention to cash flow is one of the greatest lessons that most failed ecommerce stores need to learn.
Unpredictable spikes in demand for inventory can mean many entrepreneurs have to scrabble around for ready cash at varying times of the month.
Positive cash flow means business owners have enough capital to pay all overheads consistently and have capital to invest in the business.
Monitoring cash flow on a regular basis is an important task that should not be neglected.
It helps identify any negative cash flow as soon as the issue arises and provides the opportunity to take measures to rectify this situation.
Check out the following tips for ecommerce stores looking to improve cash flow.
Cash Flow Improvement Tips For e-Commerce Stores
1.) Take Out A Business Credit Card
Taking out a business credit card is one of the easiest ways to maximize ecommerce cash flow.
If your cash flow peaks and troughs throughout the month, a business credit card can help smooth out fluctuations.
You’ll be surprised at just how much easier managing your cash flow becomes when you have a revolving line of business credit in place.
What’s more, you won’t need to pay any interest, just so long as you clear your monthly balance in full each time you receive a statement.
The only charge you’ll need to pay for your business credit card is the annual card fee, and you’ll also find that business credit cards offer a variety of useful benefits.
“Business credit cards are one of the most useful and cost-effective tools available to entrepreneurs.
If you manage your payments effectively, they can be a great way to maintain positive cash flow.
With the right card, you’ll benefit from flexible borrowing and have access to tools and rewards that can help your business grow,” says Damian Brychcy, COO and US MD of Capital On Tap.
2.) Stay On Top Of Bookkeeping
Accurate, reliable accounts are critical for keeping on top of ecommerce store cash flow.
If you don’t have the time to devote to regular bookkeeping you may want to consider outsourcing this vital task.
It’s estimated that there are 7.1 million online retailers globally, with Amazon holding 49% of the total market share for ecommerce.
Take a leaf out of Amazon’s book and don’t try to do too much yourself. If bookkeeping is not one of your strengths, let a professional organize your accounts for you.
David Luck, co-founder and CEO of Capital On Tap, says: “Cash flow is the lifeblood of any business, so it pays to get organized and stay on top of your finances.
Make sure you keep all personal and business expenses separate, pay off credit cards on time, and always be aware of what’s coming in and out.
By doing this, you can ensure that your ecommerce store will not only survive but also thrive over the coming year – and beyond.”
3.) Set Up Payment Terms With Suppliers
Another simple way to optimize ecommerce cash flow is to set up payment terms with regular suppliers.
Of course, arranging to pay your supplier accounts later may come at a cost.
You may be expected to pay slightly more for your goods, but these later payments will have an immediate, positive impact on business cash flow.
Setting up longer payment terms for higher-margin products will definitely help with cash flow issues as these products tend to be priced higher.
Another way to improve cash flow could be to reduce order size as this will spread out payments over a longer period of time.
Of course, you’ll need to be on top of inventory management for this type of approach to work well.
Most suppliers offer set payment terms, often providing discounts for early payment.
It makes sense to take advantage of early payment discounts when your revenue is high, as this will also optimize your cash flow situation.
4.) Assess Your Website Design
Your website needs to be user-friendly and designed to convert customer interest into sales.
A poorly designed website can actually damage sales, causing regular cash flow problems. Some of the most important areas to check include the following.
- Is the site mobile-friendly? Increasing numbers of consumers use their phones to shop nowadays, so optimizing your site for mobile use is critical.
- High-quality product listings are also vital. You need professional images on your site, together with sufficient product information to gain customer trust.
- The checkout process should be simple and intuitive. A cumbersome checkout process can cause customers to abandon their shopping carts. Offer lots of different payment methods and clear instructions at the checkout.
- Make sure the site can handle rapid influxes in traffic. Any website crash in a peak selling period could well devastate the day’s sales.
5.) Cut The Working Capital Cycle
The most effective ecommerce sites have a cash-to-cash cycle of fewer than 30 days, although this will depend on the goods sold.
What this means is that the time between paying for expenses and receiving cash from the customer is less than one month.
Shortening the working capital cycle means reducing the gap between buying and selling inventory and getting the cash from the customer.
There’s always going to be a delay between spending cash to buy products and selling them, but analyzing the length of your working capital cycle could be a good way to identify any loopholes and maximize cash flow in the business.
Tips to consider include reducing inventory costs by stocking the products you’re confident will sell quickly.
Opening up a pre-sales and pre-order system on your website is one way to gauge consumer demand and can result in upfront payments, even before you’ve ordered the goods from your supplier.
Using a presales technique of this nature means you’re moving into a negative working capital cycle, which is definitely positive from a cash flow perspective.
6.) Increase Average Order Values
It sounds simple, but increasing average order values from customers is a valuable way to improve sales and cash flow.
Just some of the options to consider include offering free shipping on sales over a certain cash amount and adding widgets or sidebars as ways to upsell while customers are browsing.
Increasing average order values means that every customer you acquire will bring more cash into your business.
Furthermore, you won’t need to acquire so many customers in order to hit your revenue targets or expend energy on expanding your customer base to achieve this.
There you have it, six important tips to increase the cash flow situation for your ecommerce business.
Experiencing problems with cash flow isn’t always a sign of a failing business, it could also be an indication that your ecommerce store is growing too quickly.
Stay on top of your business cash flow by monitoring it on a regular basis, and set up cash flow forecasting to help structure your business expenditure in the months ahead.