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Cash Flow Management Tips for Ecommerce Businesses

February 3, 2023

Cash Flow Management Tips for Ecommerce Businesses

Ariel Gottfeld

Ariel Gottfeld

Cash flow management for eCommerce is crucial to your operations. If you have too much inventory sitting in warehouses and too few sales, you may see your liquidity plummet. Proper planning can help you take control of your cash flow.

What is Cash Flow in E-commerce?

A basic definition for cash flow for all business types is: the sum of your income minus expenditures during a predefined period of time.

This is the cash you have left over to invest in your business.

Сash Flow Importance E-commerce Businesses

Cash flow is crucial to all online businesses and services. If you don’t have cash flow, it means you cannot, without some form of financing:

  • Hire new employees
  • Run marketing campaigns
  • Expand business operations
  • Buy new inventory
  • Pay your debts

Understanding the many cash flow problems in e-commerce will empower you to make changes that can help you achieve some form of liquidity.

Cash Flow Problems in Ecommerce Business

Before seeking out eCommerce business cash flow help, it’s important to know the main cash flow issues in the industry:

  • Record keeping is everywhere, causing you to miss when payments are slow and invoices aren’t paid on time
  • Using the wrong type of software, causing you to overlook areas of business and to spend more money than necessary
  • Overstocking items and being left with too much inventory and too few sales
  • Low profit margins eating into cash flow
  • Slow payments from customers

With this information, we automatically find new ways that we can adjust business operations to better manage cash flow.

How to Deal with Cash Flow Problems in Ecommerce Business

If your ecommerce business cash flow statement shows liquidity issues, you’ll need to manage your cash flow problems immediately. A few ways to do this are:

  • Discuss paying vendors after goods are sold
  • Negotiate longer payment terms with suppliers
  • Take out a line of credit
  • Apply for a loan or business credit card

However, this is just the start of the steps that you can take to start dealing with cash flow problems. Proper use of cash flow management tools for ecommerce businesses and the tips below can help you greatly improve cash flow.

How to Manage Cash Flow for An Ecommerce Business: Cash Flow Management Tips

Managing cash flow is possible, and the following tips can help you get the process started:

Automate and optimize the process

Cash flow management is a tedious process, and you can automate and optimize it to work better for you. A few of the options here include:

  • Using cash flow management tools to properly run reports and forecasts
  • Automate everything that you can, such as sending out invoices and payments
  • Etc.

If you work to optimize these processes, you’ll be well on your way to better managing cash flow.

Gauge the liquidation period

Use recent cash flow reports and projections to gauge what your liquidation period is at any given time. For example, you may find that if operations remain the same, cash flow will run out in six months.

This means that you’ll need to make immediate adjustments to keep operations going.

Forecast your cash flow

Managing cash flow requires you to know your current and future cash flow. Running cash flow forecasts is one of the most powerful tools that you have available to:

  • Identify cash flow issues
  • Make better business decisions
  • Judge when to secure financing

Forecasts can even help you spot trends in your business’s cash generation so that you can properly react to any cash flow issues that are probable.

Proper bookkeeping

Is your bookkeeping in disarray? All too often, record keeping is not taken seriously by ecommerce business owners, and someone will need to come in and help make sense of things.

A few of the key issues that may pop up include:

  • Ledger errors
  • Missing retained earnings
  • Invoice discrepancies

You can use software to handle bookkeeping and keep everything in order. However, you may also want to consider working with an accountant who will set up your tech stack for you so that you have the tools in place to keep your books in order.

Automate regular payments from clients

Payment automation is easier for you and your clients. You can work with clients to set up subscriptions or routine payments. Many eCommerce stores offer payment automation at a discount because it’s:

  • Guaranteed money every month
  • Keeps cash flow flowing smoothly

Prepare financial reports regularly

If you’re only looking at your cash flow once a year or every six months, you’re allowing potential liquidity problems to pile up without you noticing. Regular financial reports will allow you to:

  • Address cash flow issues rapidly
  • Identify key trends in cash flow
  • Adjust operations to manage cash better

Regular financial reports empower management to make changes throughout the year to keep the cash flow flowing. Failing to prepare reports every month or quarter is limiting your business’s ability to take measures to boost cash flow, such as taking out a loan.

How to Improve Cash Flow in E-commerce?

Improving your cash flow will require you to do one of three things:

  • Change your working capital allocation
  • Find ways to increase inflows
  • Pinpoint ways to decrease cash outflows

A few of the most important opportunities to improve cash flow are:

  1. Diversify your cash flow by selling new products to overcome lulls in sales.
  2. Create packaged product options.
  3. Offer multiple payment options, including buy now and pay later options for more costly items.
  4. Cut unnecessary expenses and overhead to reduce expenditures.
  5. Delay capital expenditures to a time when it makes more sense for the business.
  6. Work with an accountant to change working capital allocations.

You may also want to consider raising prices on items with low profit margins. Sometimes, prices for goods rise, and if you don’t pass these costs on to customers, it will lead to cash flow issues in the future.

How to Help Ecommerce Business Owners Control Cash Flow?

Business owners should rely on their internal accounting team to help them manage cash flow properly. However, a lot of ecommerce operations use SaaS tools and others to help them better control their cash flow.

Owners should have access to:

  • Current cash flow
  • Projected cash flow
  • Expenditures

Business owners need to take a proactive approach to their business’s cash flow. Utilizing the right tools to run reports is just the first part of the puzzle. Next, owners should work on creating a “LEAN” operation.

Finding ways to cut back on costs is the first step in controlling cash flow.

Of course, owners will also need to ensure that there’s enough money coming into the business to maintain profitability. Marketing and advertising efforts are the only real ways to ensure money is flowing into the business to make a difference in cash flow.

Cash Flow Frog - Best Cash Flow Forecasting Software for Your Ecommerce Businesses

An ecommerce business cash flow projection is an invaluable tool to help you better manage your business’s cash flow and operations. Whether you run an ecommerce store or are working with clients via an online store, Cash Flow Frog can help you better manage your operations.

With Cash Flow Frog, you can:

  • Run cash flow projections and forecasts
  • Analyze custom data
  • Create real-time cash flow statements
  • So much more

If you want to create your first cash flow forecast for an ecommerce business, sign up for our free trial to give our platform a try for yourself.

Click here to sign up for a free trial of Cash Flow Frog.

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