‘Cash is king’ because it keeps businesses going. It pays your bills, it sustains your staff, and most importantly, it is the means to make more money. This is the reason you need to have sufficient cash flowing in your business.
How to increase cash flow in a business? In e-commerce businesses, the problem of cash flow is not unusual since there is a constant need to invest in inventory. In fact, many small businesses struggle with the lack of emergency fund and end up failing despite being profitable.
With this in mind, here are nine ways e-commerce businesses can optimise cash flow management.
1. Don’t Wait Too Long to Get Paid
The rule number one of cash flow management is to shorten the time between making a business expense and getting paid. If your business is based on physical products, keeping it on the shelf for too long will only add to the costs – for example, storage costs. Moreover, if your products have expiry dates, the chances of a disrupted cash flow increase even further. To avoid this, stock only as per the expected demand. Make the big orders carefully. Do not over-invest even if you are in the position to do so.
The same goes for digital products. You may be tempted to launch a big Facebook campaign or revamp your e-store. But ask yourself if such investments will give you any returns soon. If not, then maybe you need to avoid them.
2. Align Expenses With the Revenue Pattern
It is a bad sign for your business if there comes a need to take money from the emergency fund to keep it running. To avoid that, align the major purchases or expenses in a year with the revenue. For example, if you know that most of your payments come in towards the end of the year, plan your expenses and purchases around that time. This way, you will be able to invest using the revenue and will not have to pay out of your pocket.
Another important thing to note when answering how to increase cash flow in a business is that most vendors have a 60-to-90 day payment period. So, wait to make the payments if you have time. Moreover, if you have good relationships with vendors, ask them if they can give you some extra time to pay.
3. Forecast Your Cash Flow
Ecommerce businesses are not just about selling. Every business involves taking care of everything, including tax payments, wages, salaries, loan repayments, and other overhead expenses. And if you do not know when and how much cash is coming in, it becomes almost impossible to sustain business growth. So, forecast your cash flow and plan each of the business expenses accordingly.
4. Clear Out Your Inventory
How to increase cash flow in a business with an unrestricted flow of cash? it is important that your inventory doesn’t hold up significant capital. So, check your inventory and sell the stock that you don’t need. You can use some strategies to raise cash faster, including liquidating excess inventory. There are many online marketplaces that you can sell on in addition to your website, the most renowned being Amazon. You can also approach liquidation companies to clear out the excess stock.
Moreover, if you have slow-moving inventory, you can use it to increase sales – for example, you can set a buying threshold and give the items as gifts to your customers on achieving that threshold.
5. Run Promotions
Focus on boosting cash flow in the short term is an important answer to how to increase cash flow in a business. For this, you can run promotions and encourage sales. For physical products, you can do a classic sale with the focus not on the profit but on generating a steady cash flow.
For digital products, you can create early-bird offers or give discounts on new signups. Even if your profit margins are not huge, you will be able to regulate cash flow and attract new customers at the same time.
6. Increase Your Average Order Value
Suppose that the average order amount in your business is $60. Now you need to figure out ways to bump it up to $75 or more. Increasing the average order value for physical products is easier; you can set up a minimum order value for free shipping orders.
For digital products, you can encourage your customers to upgrade to premium plans. You can hire dedicated professionals for this job or train your marketing professionals to upsell.
7. Reduce Unnecessary Business Overheads
It goes without saying that reducing the balance against the cash coming in helps tremendously in cash flow management. So, assess your overheads and create a plan of how you can minimise cash outflow and save money.
Make sure to review your utility costs, advertising costs, and legal fees carefully; these are usually the areas where cost-cutting is easier.
8. Optimize Invoice Management
Businesses that focus on selling and not on invoice management often end up with inconsistent cash flows. The problems may include errors in invoice development, payments coming in late, etc.
Here are some pointers on how to increase cash flow in a business by avoiding invoice-related problems:
- Use a reliable invoice management tool for error-free invoices.
- Send invoices as soon as orders are placed.
- Consider charging late payment fees to customers.
Small changes like these will help you receive your money on time.
9. Accept Credit Card Payments
By accepting credit card payments, you can enjoy possible benefits, such as cashback, grace period, etc. It will certainly ramp up your cash flow. Moreover, it would be easier for your customers to pay using credit cards, which means no delay in payments and a faster cash inflow for your e-commerce business.
Be it an e-commerce business or a small departmental store, an adequate amount of cash at all times is necessary to stay flexible and maximise opportunities for the business. While established companies set aside cash for emergencies, small business owners look for ways to fund their businesses through loans or online chit fund platforms. The purpose remains the same – to have the reassurance that they would not have to struggle for money to keep the business running.
Reevaluate your e-commerce business and use the tips above to maintain a stable cash stream.
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Aatish Khanna works with the Content Marketing team at Money Club – a digital chit fund platform that makes saving, borrowing, and investing your money more efficiently. He writes on topics to help his readers understand processes so they can make better financial decisions. He’s the go-to person that his family, friends, and colleagues turn to for all their money matters. He loves to play board games and aspires to one day build his one finance-related board game and app.