Cash Flow Lending for eCommerce: How to Maintain Positive Cash Flow
By J Leighton|
November 2, 2023
As any small business owner knows, cash flow is the lifeblood of growing enterprises. But this is especially true of eCommerce businesses. In an industry with famously slim margins and a propensity for volatility, maintaining healthy cash flow is vital for continued business growth and long-term success.
Learning how to effectively manage and maintain positive cash flow in an eCommerce business begins with understanding its impact on a growing business. Let’s start there.
What is cash flow?
Cash flow simply describes the inflows and outflows of cash into a business over a predetermined period. Cash flow is divided into two categories: positive and negative. Positive cash flow is when the net amount of cash coming into the business from revenue sales and customer payments exceeds the net amount of cash flowing outward for operating expenses like inventory, shipping, marketing, and payroll. Negative cash flow is the inverse, when expenses exceed income.
Cash flow fluctuates for any business, but when a business is in a state of negative cash flow for an extended period, the health and sustainability of the SME can be endangered. This is why maintaining positive cash flow is a priority for so many business leaders — especially those who are running eCommerce businesses.
Why cash flow management is so important for eCommerce businesses
Cash flow management is an important tool for any business owner, but it is an especially useful skill for eCommerce business owners to develop. In a relatively volatile industry that is vulnerable to rapid fluctuations in demand, supply chain disruptions, often relatively thin margins, a temperamental advertising algorithm, and fierce competition, staying on top of cash flow management is a priority for any online business owner.
Furthermore, the nature of eCommerce means that there are probably a few costs that you need to settle upfront before sales revenue starts rolling in. Between stocking up on inventory and paying for eCommerce-related expenses like inventory storage and digital marketing, online businesses have a few overhead costs to contend with before they can reap the rewards of their efforts.
eCommerce is certainly an industry that keeps business owners on their toes, but there is no need to fear when you are appropriately prepared. With the proper cash flow management strategies in place, your eCommerce business should be a in position to stay stocked up and running smoothly.
Five tips to optimise your eCommerce business for positive cash flow
As an eCommerce business, a lack of easily accessible working capital can spell stockouts and other challenges. Here are five tips to optimise your online business for positive cash flow.
- Track your transactions: It’s tedious, we know, but diligent bookkeeping will make sure that there are rarely any surprises when it comes to the cash flow patterns of your business. Plus, it can help you plan when and how to capitalise on cash flow lending — although the right business financing partner should make flexible funding solutions available in 24 hours or less. Tracking transactions is especially important for online businesses that utilise eCommerce platforms (like Takealot) which typically pay resellers weekly.
- Leverage tech solutions for careful inventory management: Excess inventory ties up cash and increases storage and obsolescence costs, and stockouts can cause unwanted bottlenecks in revenue income. Effective inventory management is synonymous with optimised cash flow for eCommerce businesses, so it’s worth investing in software that can help you do it more easily.
- Cultivate supplier relationships: Business isn’t just about profit, it’s also about robust relationships. By carefully cultivating relationships with local suppliers, you’ll have a friend to call if your main supplier falls through and you’re in a tough spot. Paying 10-20% more than you usually do is better than going out of stock for a long time, especially if your alternative supplier can promise faster fulfilment times.
- Manage adequate reserves: Maintaining safety stock and cash reserves is one of the best ways to keep your business steady, even in the face of market volatility. Ideally, the business should have 3-5 months’ worth of operating expenses in cash on reserve to navigate disruptions.
- Consider cash flow lending solutions: If you’d prefer to keep your business savings on hand for a future opportunity, cash flow lending can help you effectively manage your cash flow. Not only will applying for cash flow lending solutions give you peace of mind; but it also grants your business fast, flexible access to capital as and when you need it, giving your business the extra boost it needs to thrive.
Fast, flexible cash flow lending solutions from Bridgement
Bridgement’s simplified business financing solutions are ideal for growing eCommerce businesses that need fast, flexible access to funding. Fill out our paperless online application in two minutes and access up to R5 million in 24 hours or less.
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