As an ecommerce business owner, you're constantly juggling cash flow to ensure you have enough money to keep your business running smoothly.
And if you’re making sales, there are probably moments when there's not enough cash in the bank?
You've paid your bills and employees, but there's still no money left to invest in new products or marketing?
Well, you are not alone.
Research says 82% of small businesses fail due to poor cash flow management.
So, what's the problem? Why is your cash flow so tight?
In this guide, we'll explore the top 7 reasons why your ecommerce business may be struggling with cash flow and provide actionable tips to help you improve your financial situation.
As an ecommerce business owner, your ability to keep operating, pursue growth opportunities, and pay your bills depends heavily on cash flow.
When you have a positive cash flow, more money flows into the business than leaves.
Without sufficient cash flow, ecommerce businesses may struggle to operate smoothly, resulting in missed opportunities and potential financial losses.
Now, let's look at some of the most typical cash flow problems that small businesses face and what you can do to help prevent them.
One of the most common cash flow problems for ecommerce businesses is delayed customer payments.
According to one research, nearly 50,000 SMEs in the UK close each year due to slow payments!
There are several solutions to this quite painful problem.
A credit policy outlines the steps to collect unpaid debts.
In addition, it helps you determine which clients or customers are qualified for credit from your business.
Credit policies are essential because they hold your clients accountable while improving cash flow.
Ensure there are no problems with the goods or services before asking for payment.
Delaying document sending causes payment delays, which puts extra strain on your company's cash flow.
Invoice reminders are a common feature of invoicing and credit control software that you can use to remind customers when their payments are due.
The next step is to send the client a reminder email that includes a polite but firm request for money.
Or try calling them since emails are usually easy to ignore.
The final step is to always monitor the progress of payments and to thank your clients when they pay your invoice.
This step ensures that you develop a strong relationship with your customer and encourages them to return to you for future business.
Another common ecommerce cash flow problem is poor inventory management.
Managing your inventory is like walking a tightrope:
Inventory management is a science that requires an acute understanding of market trends and customer demand.
If your product is perishable or prone to depreciation, you must manage your inventory even more carefully.
You must do so to avoid leaving you with a pile of unsold goods that are losing value with each passing day.
In the worst-case scenario, poor inventory management can lead to cash flow problems and even bankruptcy.
On the other hand, suppose your cash is tied up in unsold inventory. In that case, you may need more funds to cover other essential expenses like rent, payroll, or marketing.
On the other hand, if you run out of stock, you'll be unable to fulfill orders and could lose valuable customers to competitors. As a result, it can significantly impact your future sales and revenue.
With prime shopping days and promotional events like Black Friday, Cyber Monday, and other flash sales, it's crucial to maintain adequate inventory levels to fulfill orders promptly and avoid disappointing customers with canceled or delayed orders.
Your inventory turnover ratio can indicate how efficiently you sell your inventory.
Likewise, monitoring inventory days on hand can help determine when to restock inventory levels.
Startups typically need help managing their cash flow.
It is because they often fail to account for the total cost of licensing, expert services, initial inventory for product launches, marketing, and technological investments.
These costs also include:
Since there may not yet be any revenue to cover them, they can be tough to manage during the startup phase.
Even for established ecommerce companies, operating costs can quickly eat away at your cash flow if you don't watch them closely.
Whether your capital is from personal savings, fundraising, or borrowing, it's crucial to manage it wisely until you generate revenue, which may take some time.
Another thing you can do is to find non-essential expenditures that you can safely cut to reduce your overhead.
For example, you could negotiate with shipping companies to get better shipping rates, combine your software subscriptions, and think about outsourcing tasks that aren't central to your business.
Or, if you are paying rent on space you rarely use, you could reduce it or relocate your operations to a smaller, less expensive location.
Many ecommerce businesses experience seasonal fluctuations in sales, which can lead to cash flow problems during slower months.
Due to the need for substantial investments during relatively brief time spans, seasonality places a significant strain on cash flow.
For instance, businesses must start spending heavily on stock, employees, and overhead in anticipation of the holiday rush as early as July.
As a result, if you're an Amazon seller, you might have to wait until December to see any money from Black Friday purchases.
To address this issue, you can plan for these fluctuations by:
The idea of ecommerce seasonality is not hard to grasp.
There are slow sales times throughout the year, and then there are times when companies can hardly keep up with demand.
Myos offers Purchase financing designed to help ecommerce business owners overcome this obstacle.
If you wish to prepare for the high season, Myos will simply pay for your order without contacting your manufacturer. Then, your order will be shipped to your warehouse, and you can start selling immediately.
With the resulting profit, you can flexibly pay back Myos financing.
You don't have to provide any personal guarantees, only goods as collateral.
Since we understand that slow months can happen, you decide when to settle the payment. Then, repay according to what your turnover allows, all without any fixed installments.
Inefficient payment processing can lead to delays and errors, which can impact cash flow.
You should look into and offer various payment methods to solve this problem.
It not only improves the shopping experience for the customer but also increases the chance that they will make a purchase.
Credit cards, debit cards, and mobile wallets are among the most common methods of payment that online customers use.
You can automate payment processing using tools like PayPal, Stripe, or similar platforms to improve payment processing efficiency.
You can also set up recurring payments to reduce the risk of missed payments and simplify the process.
If you sell products or services internationally, you must consider accepting payments from customers in other countries.
A small business that takes multiple currency options is more likely to draw customers from all over the globe.
Remember, because payment gateways are responsible for the safe and efficient handling of financial transactions, it is crucial to work with a reputable and trustworthy service provider.
Overspending or underspending on marketing is simple to overlook, but it can affect your cash flow differently.
Increasing marketing efforts is a common way for businesses to increase sales.
However, if your campaign fails, this could rapidly become a source of financial stress.
But, if you cut corners on promotion, you could end up with issues.
To find that sweet spot, you must monitor your marketing's return on investment and make the right changes to your strategy.
Your website is essential concerning sales. However, sales can decline and unexpected cash flow problems will arise if your website is not built with conversion in mind.
To ensure your website is customer-friendly, inspect the following:
Encouraging customers to buy more can help boost sales and cash flow.
You can offer discounts for bulk purchases or create bundles incentivizing customers to buy more products at once.
This strategy can help increase your cash flow while also improving customer loyalty.
Repeat customers can be a reliable source of revenue for ecommerce businesses.
You can encourage it by offering loyalty programs, personalized product recommendations, and exceptional customer service.
Focusing on this issue can increase customer lifetime value and improve your cash flow.
Setting realistic sales and cash flow goals can help you avoid overextending your business and putting unnecessary pressure on your finances.
Use cash flow forecasting tools to help you plan and track your cash flow and adjust your goals based on your actual performance.
When cash flow is tight, ecommerce businesses can benefit from financing options like lines of credit, business loans, or invoice factoring.
These options provide a much-needed cash injection to help you cover expenses and invest in growth opportunities.
Ecommerce businesses must monitor their cash flow and make a sound financial plan considering possible problems.
You can prevent cash flow problems and keep your finances in good shape with management and strategic planning.
But, as we all know, life happens.
So, if you wish to be ahead of your competition and run your business successfully, let Myos handle your finances.
With a simple application and fast funding process, you can concentrate on elevating your business, and we'll do the rest.
So, sign up today and find the perfect financing solution for your business!
Ecommerce businesses can face several cash flow problems, including slow-paying customers, inventory management problems, high overhead costs, unexpected expenses, and seasonal fluctuations.
Ecommerce businesses should create a cash flow forecast and analyze their expenses to identify areas for improvement. They should also explore financing options, such as loans, lines of credit, or invoice factoring, to bridge the gap until their cash flow improves.
Ecommerce businesses can prevent cash flow problems from occurring by creating a financial plan, monitoring their cash flow regularly, staying on top of their accounts receivable and payable, and diversifying their revenue streams.
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