Cash Flow for Ecommerce: 4 Tips for Smooth Sailing
In one way, cash flow management is easier for ecommerce retailers because there are no delays in accounts receivable: your customer has to pay you before you ship the item. On the other hand, the time lag between you paying the manufacturer and a customer paying you can be unpredictable — sometimes leaving you with little or no cash to keep your business afloat. Here are four ways to smooth out the turbulence.
Merchandise shouldn’t sit on the shelf for more than 30 days. If it does, you’re buying too much of it and tying up too much of your money. To avoid excesses:
- Track your sell-through for each SKU, so you know which ones need to be reordered more quickly and which should be discontinued.
- Don’t be tempted by bulk discount offers from your suppliers, unless you have proof positive that those items will sell quickly.
As an ecommerce business, you probably devote much thought and effort to driving traffic to your website. But it’s even more important to sell them something after they get there. Best of all is to convince them to spend more than they originally planned. Proven strategies for increasing order value include:
- Free shipping on orders over $XX.
- Loyalty rewards for repeat customers.
- Purchase-with-purchase and buy-one-get-one offers.
- Add-on purchase suggestions.
Get a better deal on payables.
Keep your cash in your pocket instead of your supplier’s as long as possible. Wait until the end of the term to pay: 60 days, 90 days or whatever it says in your contract. Watch out for late fees, though.
Also, take advantage of early payment discounts. If you don't know whether your supplier offers them, ask.
Choose an inventory loan.
If you’re short on cash but need to restock, an inventory loan may be easier to get than a traditional bank loan. That’s because lenders will look at your sales history, not just your credit score.
Consistent cash flow can be the difference between success and failure for an ecommerce retailer, even when you’re making profits. With these strategies, you’ll have a great shot at keeping cash flow — and your business — on an even keel.