Profit generation is always one of the main goals of any ecommerce business. But there is another factor that will ultimately determine whether you thrive or flounder: cash flow.
No matter the size of your ecommerce business or the industry you’re in, maintaining a strong and steady cash flow is key.
When the money coming into your business is in a positive state against the money going out, it’s a good indication that your business is stable and has the funds to pay off debts and loans, while also investing in growth strategies.
The Small Business Administration estimates that a significant percentage of small businesses fail because of cash flow problems (despite being profitable).
The cash flow problem in many ecommerce businesses comes from the constant need to invest in inventory, which can cause a cash crunch.
With this in mind, here are six ways to increase cash flow in your ecommerce business:
1. Reduce your overheads
Assess your overhead expenses and find ways to lower your spending to save money. Perhaps you can make adjustments in advertising costs, utilities, and/or legal fees, etc.
This way, you’ll minimize your cash outflows and help to redress the balance against what’s coming in.
2. Check & clear-out your inventory
It’s important not to allow your inventory (stocks or goods you hold) to tie up your capital.
Check your current stocks and sell the stuff that you don’t need. Strategies you can use to raise cash fast include liquidating your excess inventory by selling unwanted products on Amazon; and using other online marketplaces or liquidation companies.
Alternatively, offer your slow-moving inventory as free gifts when customers buy other items and meet a threshold. Do you know what your Inventory Turnover Ratio is? Is it optimized?
3. Improve invoice management
If you want to increase your cash flow, you need to constantly monitor and manage your receivables or invoices.
There are downloadable invoice management tools to help you with this task. Make sure you have clear payment terms/policies and that the invoices you send are always accurate. Set a regular time for sending invoices and stick to it.
Also, consider implementing fees for late payers. If you send your clients invoices in a timely manner, it sends a message that you care about payments and you have a much better chance of receiving your money on time.
4. Offer incentives & promos
Encourage your customers to pay early or on time by offering incentives or discounts. You can also sell the products that you want to get rid of at a discounted price.
Referral incentives, discounts for a certain period, and customer appreciation promos can also help boost your cash flow significantly.
5. Use & accept credit card payments
Another good idea is to use a business credit card for your payables.
With the grace period, possible cash back, and other benefits that you’ll likely receive, you can ramp up your cash flow.
At the same time, you can also offer a credit card payment facility to your customers. This will not only make paying easier for them; the inflow of cash will be faster for your business.
6. Plan & forecast your cash flow
Creating a budget is just one step – forecast cash flow so that you know what’s coming. By planning ahead in this way, you can prepare adequately for any periods when you’re going to run low on cash.
These tips will help to increase cash flow in your ecommerce business, enabling growth. If you’d like more professional guidance about this, please contact us here.