If you have a service business, managing cash flows is reasonably straightforward. You sell a service, deliver it, and deduct the expenses incurred on the project.
Cash flow management for ecommerce is a little more complicated. In addition to selling your product, you have to make sure you account for inventory, delivery costs, defective or broken products, and returns. All of these can make a serious dent in your cash reserves.
Control your payments
The quickest way to improve your cash flow is to speed up your payment cycle. Wherever possible, ask customers to use recurring payments and try to transform any Net-60 or Net-90 customers to Net-30. In this instance, Net refers to the amount of time a customer has to pay off an invoice, with Net-60 and Net-90 representing 60 or 90 days, respectively. If you switch to Net-30 for invoice payments, then you would get your money faster.
Do the same for your suppliers. Many businesses try to delay paying as long as possible to keep as much cash in their account. The downside of this system is that the money is already allocated to pay an invoice, so it’s not available for other business uses. Pay your suppliers within a faster time frame to ensure your cash flow statement is as accurate as possible.
Control your inventory
Controlling inventory is crucial for maintaining an ecommerce cash flow. If your business is currently low on cash, it might be better to sell some items at a discount rate to generate cash from your inventory. When it’s time to re-stock, work out if it makes more sense to pay slightly less per unit to make a smaller order.
It can be tempting to stockpile inventory to be ready for when you receive orders. If you don’t always want your products to be out of stock, make sure you carefully plan your stock levels to make sure you have enough products to fulfil orders without tying up all your cash in inventory.
There is a reason that most large companies have moved to just-in-time inventory models. Just-in-time inventory management (or JIT) refers to the practice of working closely with suppliers to ensure all necessary materials arrive at the same time production is scheduled to begin. This allows businesses to reduce waste as well as costs by only ordering what they need when they need it.
