Tips to avoid and manage a cash flow shortage in eCommerce

Knowing how much money you have on hand to spend and re-invest is an important part of an eCommerce business owner’s job. 

To stay on top of money in and money out, you need to develop great cash flow management strategies. Regularly creating a cash flow statement is a part of good business hygiene that helps you assess your ability to meet its financial obligations. With financial records and cash flow management strategies, you can stay on top of your cash flow now and be prepared in case of a cash flow shortage in the future.

How to avoid a cash flow shortage

1. Track your cash flow regularly

A monthly assessment of your cash flow can help you track whether you’re generating the type of funds your business needs to sustain itself. This can further make you better at projecting future cash flows and ways to take care of outstanding bills. If you’re expanding your business in the future, plan for your growth and cash flow in advance.

2. Create a cash flow projection

Preparing well-informed cash flow projections for coming time periods can alert you to potential focus areas for your business. These projections can give you an idea of how well your business can manage its incoming cash flows to meet upcoming cash outlays.

• Assess how much cash your business has on hand at the moment. 
• Estimate how much money will be coming into the business from customers, outstanding receivable accounts such as service charges, partial collections of defaulting debts, and other sources. Have an estimate of when this cash inflow will be arriving.
• Assess your cash outflow for the upcoming time period, be it a week, month, quarter or year. 
• Keep track of what you’ll need to spend on, such as utilities, equipment, rent, employee salaries, inventory, storage, and maintenance.
  

3. Boost sales

To maintain a positive cash flow, you need to increase sales, either by attracting new customers or selling more goods and services to existing customers.

New customer acquisition isn’t as easy as selling more of your products to existing customers, especially when you’re just starting out. Knowing your audience is key. Use payment software and online selling platforms that give you access to customer habits and patterns, which you can use to plan further marketing activities. You can sell better with data about why your customers buy from you in the first place.

4. Special discounts for loyal accounts

Offering special discounts and offers to customers who pay on time or early is a great incentive that motivates your clientele to be prompt in paying your bills. Your profit margin might take a slight hit, but it may be offset by the ready cash you receive. You’d need to assess: If you have suppliers to pay now, would it be better to have $10 in hand today or $15 in a couple of weeks?

Loyalty discounts can also encourage your customers to repeatedly buy from your store because you offer better deals, so you drive sales higher.

5. Tighten credit requirements for customers

Extending credit to customers might boost the rate of sales in the long-term but could also affect your cash flow in the short-term. This, in turn, can stall day-to-day management. Be selective about who you offer goods on credit to. Thoroughly research your clientele to verify their creditworthiness. Make sure they have a history of reliably paying debts on time.

6. Take advantage of terms for payables

Seize the opportunity to delay cash outflows within payment periods. You don’t have to pay for a product in 15 days if the due date is in 30 days. Instead, you can retain the funds longer and focus on more imminent high-priority expenses. 

When you’re choosing suppliers, consider vendors that offer flexible payment terms, even if they cost slightly more. It’s a better option if you’re prone to delays in repayment and preferable to rigid payment terms. Once you’re locked in with a supplier, communicate consistently and let them know ahead of time if you need a payment extension.

7. Speed up receivables

The best way to improve cash flow is to encourage your customers and debtors to pay on time. Establish their creditworthiness ahead of time. Request payment by direct deposit so it hits your business bank account sooner. Offer incentives, such as discounts for prompt payments. Issue invoices as soon as you make a sale, and follow up with customers when there’s a delay in payment. Having a cash-in-advance policy is good for online customers who tend to default.

How to manage a cash flow shortage in eCommerce

Any business owner is susceptible to a cash flow shortage from time to time, especially for startups and online businesses.

The best way to overcome a shortage is to detect it early. Regular cash flow projections based on the past can help you foresee a shortage before it happens. If you’re able to predict the shortage, you may be able to prepare by borrowing funds, then planning your debt repayment strategy. You may also be able to negotiate with suppliers, who are more likely to give you favorable terms if you’ve been a loyal customer. The crucial point: Spot the shortfall as early as possible so you can plan and take action.

If you find yourself in the throes of a cash flow shortage, there are good options to get income streams moving again.

1. Get customers to pay faster

Especially when you have customers whose invoices are already past due, you can turn up the pressure to get paid more quickly. Or you can offer incentives to encourage quicker payment across your customers.

Depending on the emergency, you might allow for a slight discount to motivate defaulting customers. Some of your worst defaulters might be willing to pay if you offer them a steeper discount for immediate payment. Some cash flow may be better than none at all if you’re hard-pressed to meet your own expenses.

2. Shorten the conversion period

Look for ways to speed up cash flow conversion. Remember, a high rate of inventory turnover — your sales — doesn’t mean much if your customers don’t pay on time. Don’t get distracted by long-term gains and sacrifice the imminent health of your business. Instead, try implementing payment strategies such as requesting deposits, 50% of pay upfront or payment in full upon placing an order.

3. Sell and lease

Another way to raise funds is by selling some of your more liquid assets, such as office equipment, computers or printers. You may be able to do without them for a while, or you could lease similar items.

4. Prioritize spending

Sort out which bills you need to pay first. Prioritize the people you regularly do business with and who are the most valuable people to your company. It may look something like this: 

• Employees get paid on time. 
• Suppliers are next on the list. 
• Small one-time expenses come last. 

You can always ask to make partial payments or to get an extension if your creditors are willing. 

If you’ve done all of these and still need a bit of assistance to bridge the gap, Brightflow AI may be able to help. To see if Brightflow AI can help you unlock growth capital for your business, check out our solutions or schedule a quick call with one of our advisors today.