Various factors can affect your eCommerce business, adding in a measure of unpredictability. No matter how much you prepare for the future, no amount of planning can fully take into account fluctuations in seasonal sales, supply chain issues, or sporadic sales.
Because of these factors, the financial health of your business can waver. Despite this, it is still imperative that you always have a sufficient amount of working capital on hand at all times to pay for operational expenses like employee salaries, tech tools, storage rentals, and the like.
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 so 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 what your upcoming obligations are in terms of expenses and lets you know what income you should be expecting.
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 where 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 amount of time that 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 endeavors, 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. 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 using historical data to predict future sales and expenses will give you a good prediction of what your cash flow will look like at a specific point in time. It will 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 allows you to prepare for seasonality changes.
7. Increase your average order value
Finding innovative ways to increase your order value will ultimately increase your sales and improve your cash flow. If you sell physical products, you could try offering 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 be able to manage your cash flow and your entire eCommerce business with confidence, the team at Enkel can help. Our experts can provide you with the bookkeeping assistance that you require, assuring you that your business's finances are well tended to.