7 Tips To Improve Cash Flow for eCommerce Businesses

Omar Visram
7 Tips To Improve Cash Flow for eCommerce Businesses
Table of Contents

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Various factors can affect your eCommerce business, adding a measure of unpredictability. No matter how much you prepare for the future or how closely you follow your business' key performance indicators (KPIs), no amount of planning can fully account for fluctuations in seasonal sales, supply chain issues, or sporadic sales. 

Because of these factors, your business' financial health can waver. Uncertainty in sales makes it imperative that you always have sufficient working capital on hand to pay for operational expenses like employee salaries, tech tools, storage rentals, and the like. Having this buffer ensures that slow periods don't have lasting negative impacts on your business' financial health.

Having a master plan in place to manage your cash flow will always ensure that you have sufficient cash on hand when you need it to keep your eCommerce business afloat and ready to tackle any challenge that may present itself.

1. Keep your bookkeeping up to date

There are many important reasons to ensure that your books are always current. This is especially vital for improving your cash flow, as it allows you to have a clear picture of your upcoming expenses and income and lets you know what income you should be expecting.

Organizing and keeping your books current means that you always know how your business is doing financially, so you can make smart business choices about expenses and investments to grow your business. It also makes tax time much less stressful because everything is already organized, which could even help you save on taxes. Keeping track of your cash flow will help you stay on top of bills and expenses. And if you ever need a loan or want to attract investors, having your books in order shows that your business is on the ball and growing.

2. Organize your expenses

One of the best ways to keep your business in the black and out of the red is to line up your expenses to match your revenue trends. You probably find that there are certain times of the month when revenue is higher than others. Choose these periods of increased revenue to pay your most significant expenses.

Since most suppliers expect payment within 60 to 90 days, you don't always have to pay them right away. However, you should continually monitor your accounts payable list to ensure that you never incur any interest on late payments. Keeping a good relationship with your suppliers can also benefit you by allowing negotiations for late payments when needed. It may also give you the advantage of early payment discounts in times when revenue is high.

3. Decrease the amount of time between business expenses and getting paid

The less time that there is between paying for an expense and receiving money from your clients, the healthier your overall cash flow will be. If you specialize in selling physical products, always try to minimize the time your inventory stays in stock. Overstocking items means that you are losing money from both lack of sales and stocking fees. Try to stock only those items that you are confident will sell quickly. 

The same goes for investing in an advertising or marketing campaign. The longer it takes for you to receive sales from these endeavours, the poorer your overall cash flow will be.

Try to plan out your expenses properly to ensure that you will have a stable amount of sales coming in shortly afterwards. This will go a long way in keeping your funds in the black. 

4. Automate recurring payments

Automation not only makes your life easier and more organized, but it also makes things much more predictable. Small businesses can streamline their cash flow by setting up automated payment systems for recurring expenses like utilities, subscriptions, and supplier invoices. This can be done using bookkeeping software that supports automatic bill payments or through banking apps that allow you to schedule regular payments. Automating these payments helps cut down on admin time, reduce the risk of late fees, and keep the finances tidy and predictable, which is especially handy when you're juggling the demands of running your business. Automating payments like rent and software subscriptions will give you a monthly estimate of how much money is leaving your business to cover your regular expenses.

5. Make it easy for your customers to pay you

This probably sounds obvious, but so many businesses unknowingly make this mistake. If the payment process isn't easy for your customers, they will take their business elsewhere. Ensure that you accept all types of payment methods and credit cards; the more options a customer has, the better your chances of making a sale.

You can also automate the billing process. If you have a B2C eCommerce platform, make sure that your customers can easily checkout on your website and pay online. If you sell primarily to other businesses and find that order sizes are large and too expensive for credit card payment, consider withdrawing payments electronically from your customer’s bank accounts using Rotessa.

Read our Best Practice Handbook for Improving Your AR Process.

6. Create a cash flow forecast

A cash flow forecast is like a financial roadmap for small businesses, predicting when and how much money will come in and go out in the future. Looking at past sales trends, seasonal fluctuations, and expected expenses gives you a snapshot of your business' financial health. A cash flow forecast using historical data to predict future sales and expenses will give predictive insights into your cash flow at a specific point. It will also give you the advantage of identifying potential shortages in cash balances ahead of time, allowing you to set aside surpluses to cushion slower months and prepare for seasonality changes. This kind of forecasting helps you anticipate cash shortages and plan for significant expenses, like equipment upgrades or bulk inventory purchases.

At its most basic level, a cash flow forecast is useful for setting sales targets and managing budgets effectively. Essentially, it's all about making sure you’re never caught off guard financially, helping you steer your business smoothly through ups and downs.

7. Increase your average order value

Finding innovative ways to increase order value will ultimately increase sales and improve cash flow. If you sell physical products, you could offer free shipping over a certain purchase amount. If you sell a digital product or service, you can work towards upgrading customers to more expensive plans.

As an eCommerce business, improving your cash flow can mean the difference between success and failure. The better your cash flow, the better able you will be to deal with any fluctuations in sales that may come your way. One of the best methods you can employ to ensure that you always have visibility of your cash flow is to keep accurate and timely bookkeeping records at all times.

If you want to manage your cash flow and your entire eCommerce business confidently, the team at Enkel can help. Our experts can provide you with the bookkeeping assistance you require, assuring you that your business's finances are well tended to. Contact us for bookkeeping services that will give your e-commerce business the edge it needs in today's competitive markets.

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