3 Surefire Ways to Ease Cash Flow Challenges in Your Ecommerce Business
A cash flow crunch can happen to anyone. Your business can suddenly run out of cash for operations and you might not have extra capital or reserves to tap. For instance, customer payments might not arrive when bills and payroll are due. Your payouts from your eCommerce platform can get delayed. Or, you’ve run out of stock to sell but lack the available funds to replenish inventory quickly to meet surging demand.
Regardless of the reason, you must prepare your eCommerce business to overcome the crunch, especially ahead of uncertain economic times. With careful planning and timely action, this is more than possible to achieve. Here are three surefire ways to ease your cash flow burdens:
1 – Track All Expenses & Make Cuts Where Necessary
One of the essential things you can do to deal with your cash flow crunch is to cut all unnecessary expenses immediately. Take a detailed look at your monthly expenses. Check every line item and see how each relates to your core operation. You’d be surprised how many of your expense items may be considered non-essential at this point.
Examples of such costs are snacks and coffee, office supplies, and advertising costs. If you happen to use certain software and applications that aren’t really being used, you can pause subscriptions or downgrade them to cheaper tiers. If you’re paying yourself a salary, consider putting your salary on hold. Little things can add up to what you need to tide your business over. Cutting these expenses out should be temporary, and you can bring them back once the crunch has passed.
Note that this is only possible if you are meticulous with your recordkeeping and know exactly where your money is. So, if you aren’t keeping good track of your finances, you should start with this exercise. It makes spotting unnecessary spending and anticipating revenue easy.
It helps to use bookkeeping applications like QuickBooks and Xero that make logging financial details easy. You should record each invoice, payment, and collection with details such as the amount and when they’re due. Every expense item should be logged with corresponding documentation. These tools can even be linked directly to your bank accounts so that you can check your cash flow in real-time.
2 – Change Your Payment Methods
Another way to ease your cash crunch is by optimizing how you settle your obligations.
If you’ve built strong relationships with your suppliers, you can reach out to them and ask if they can provide you with more favorable payment terms. Instead of getting invoices marked “cash on delivery,” you can try to negotiate for “net 30” arrangements in which invoices are due 30 days after receipt.
You can even try asking for installment payment plans or securing lines of credit. Suppliers are likely to help you out and give you some relief especially if you’ve been a good partner. You can also explore backup partnerships. Maker’s Row and Kole Imports are US-based platforms that can link you to potential manufacturers and suppliers that can offer favorable terms.
If you have credit cards, leverage them in the meantime. Find out which billers take credit card payments and use your cards to pay your bills. Most utility providers do accept them. The gap between your actual transaction date and the card’s due date will give you some leeway on when cash must go out. Just make sure you settle the full amount once your business gets its revenue so that you don’t get charged additional interest.
When doing this, keep in mind that using a personal account for business purposes can result in the loss of protections provided by operating a business as a separate entity. Your creditor can go after your business if your personal account defaults. But if it’s just to tide you over until actual revenue materializes, doing this shouldn’t be a problem.
3 – Secure Additional Funding
You can also try to resolve your cash flow issues by infusing the business with additional cash through external funding.
There are situations where spending is necessary for the good of the business. The cash crunch may be caused by a growth opportunity, such as in the case of stockouts. Your product may suddenly have gotten a surge in demand and now you need to restock and spend on securing additional inventory. In such situations, it can be advantageous to look for ways to secure additional cash rather than let the opportunity to win more customers pass by.
E-commerce funding has become easier these days. In recent years, eCommerce-focused funding platforms have been emerging. They can readily provide financing at affordable rates and manageable terms if you have a strong enough sales history. 8fig, for example, integrates with your eCommerce platform and uses artificial intelligence to create customized growth plans based on your needs. The capital injections are disbursed incrementally to ensure the most optimal path toward growth. The platform even provides a free planning tool that you can use to optimize your supply chain using your company’s data.
If you have assets to use as collateral, you can also consider securing conventional loans. LendingTree, for instance, is an online platform that connects businesses with loan providers and creditors. You can shop around for the most favorable business loan that you can get.
Know Where the Money Goes
When experiencing a cash crunch, it’s essential to recognize the reasons behind it. If you’re experiencing a cash crunch because you aren’t generating any revenue, then you may have to check if your business is viable. There’s no shame in reworking your business direction. Easing your cash flow burdens may just be delaying the inevitable and even lead you to a worse situation.
If it’s just a case of bad timing or an unexpected growth opportunity, you should do just fine by applying any of these measures. Just make sure you plan and strategize to ensure that your actions not only address the crunch but also prevent future ones.
Still, it all starts with having an accurate understanding of what’s happening in your business. You should always know where the money goes.