6 Crucial Steps for Building a Healthy eCommerce Cash Flow

6 Crucial Steps for Building a Healthy eCommerce Cash Flow

There are plenty of reasons why eCommerce businesses fail. Some struggle to target the right audience, and others experience high customer churn, as a result of slow deliveries and problematic customer service strategies. However, the most common reason for eCommerce business failure is also the simplest: issues with cash flow.

According to a US Bank study, 82% of small businesses fail due to cash flow problems. From lack of working capital to poor forecasting, issues with cash flow can bring even the most innovative eCommerce company to its knees.

Unfortunately, with limited access to financial talent and leadership, many eCommerce companies also have a hard time recognizing and resolving their cash flow issues. The good news is that the right technology and innovation can give any eCommerce business the tools it needs to compete.

6. Steps for a Healthy Ecommerce Cash Flow

Ultimately, cash flow is the lifeblood of any business, eCommerce or otherwise. However, many eCommerce companies often underestimate the importance of a concrete cash flow strategy. While there is no cookie-cut plan to ensure eCommerce success, some of the most important steps any online seller can take include the following:

1. Update your Approach to Forecasting

Cash flow forecasting is essential to giving businesses the visibility they need to predict future scenarios and handle incoming and outgoing cash effectively. But effective forecasting in eCommerce can be challenging given the unpredictable nature of eCommerce – global economic conditions, shipping delays, seasonal changes, etc. While it’s difficult to know exactly how much money you’ll earn in each period, looking at the data on a holistic level can help you to make the right decisions.

Data-driven tools like Xero and Cube help companies use business information such as trends, payables, receivables, and even hiring plans to determine what cash flow might look like in the future. Companies can even take advantage of new advances in artificial intelligence to enhance their predictions and insights.

With state-of-the-art technology, it’s easier to align the various pieces of data collected through the business ecosystem, to access a more comprehensive view of your company’s financial standing. You can begin to better understand how seasonal changes influence your business and start preparing for both best-case and worst-case scenarios.

Also read: How to Build an Enterprise eCommerce System

2. Improve Your Supply Chain Strategy with AI

One of the reasons eCommerce businesses struggle so much with cash flow management is a lack of financial expertise. Most companies won’t have their own CFO to help them understand their cash flow analytics, create forecasts, and plan effectively for the future.

This problem is further compounded by the fact that eCommerce companies often have to deal with a number of unexpected issues, from supply chain instability to disruptions and shortages. Failure to effectively align your supply chain strategy with your cash flow plan could lead to a number of problems. Lack of working capital combined with poor foresight could lead to stockouts. On the other hand, ordering excess inventory could leave companies without the extra capital they need to invest in growth.

According to Yaron Shapira, CEO and co-founder of 8fig, an eCommerce funding platform that also offers tools for financial planning and supply chain management, new online sellers should learn from retailers that are using AI to help manage their cash flow.

“Today’s retailers are leveraging technology to refine their supply chain forecasts by utilizing machine learning algorithms, which can identify and interpret trends in large and complex data sets,” said Shapira in an interview with GoBankingRates. “For example, they use supervised learning methods to develop models that predict demand based on historical sales data. These models consider numerous variables, such as sales in different periods (weekly, monthly, or annually), seasonality, and external factors such as weather conditions or market trends.”

With the widely available and accessible tools that AI has to offer, especially in an easy-to-use manner such as the solutions offered by ChatGPT or eCommerce platforms like 8fig, solo entrepreneurs and small teams that lack the expertise of an executive team can address these pain points, make better business decisions, and plan more accurately for long-term success.

3. Track Expenses Meticulously

Effective and healthy cash flow management in eCommerce requires business leaders to not just predict what kind of cash they’ll have coming in, but also understand the expenses they need to account for on a daily, weekly, monthly, and annual basis.

In an agile eCommerce environment, it’s easy for certain costs to fly beneath the radar. Even if you’re carefully watching fixed costs like full-time staff salaries, supply chain costs, insurance, and production fees, you may occasionally miss some of the extras.

Running a successful eCommerce business often involves various miscellaneous expenses, from investments in software development for eCommerce apps to marketing and promotional costs, and even subscriptions to various software solutions and tools.

Keeping cash flow healthy requires business leaders to have a comprehensive method to monitor and keep track of all of these expenses. Software that can integrate with bank accounts and eCommerce platforms, such as the tools offered by QuickBooks, can help with this, making it easier to categorize those various complex expenses and potentially narrow down which costs to cut out in your business.

4. Negotiate with Your Suppliers

Speaking of expenses, your suppliers are likely to account for a significant portion of your outgoing cash. Many eCommerce business owners make the mistake of failing to review their supplier options and payment terms over time. However, communicating with suppliers more effectively can be a powerful way to improve your cash flow strategy.

Depending on your forecasts and supply chain insights, you can speak to suppliers about securing volume discounts based on the number of products you purchase. Some suppliers can offer reduced pricing or better payment terms in exchange for more frequent, or larger orders.

Other vendors may be willing to offer extended payment terms, giving you more time to pay for invoices. Engage in collaborative planning with your suppliers to align production schedules, order quantities, and inventory levels. By synchronizing your operations this way, you can reduce lead times, optimize inventory management, and positively drive cash flow.

5. Invest in the Right Expertise

AI innovations are reducing the strain on eCommerce companies to hire their own financial professionals and teams. However, this doesn’t mean business leaders should go entirely without professional support.

Sometimes, it’s still important to have an expert take a look at everything on your behalf. As your business gets bigger, it can become increasingly difficult to monitor and manage everything. Hiring a trusted bookkeeper or accountant, even on a part-time basis, can make a big difference to the health of your cash flow. A bookkeeper can help with keeping accurate and complete records of your transactions, assisting with manual accounting processes, such as recording figures.

An accountant, on the other hand, can focus on the larger financial picture, using financial data drawn from the e-commerce business to guide you and ensure you’re meeting your legal responsibilities. Some can even make predictions and recommendations, so you’ll know when to seek funding, move forward with spending, or cut back.

Also read: 7 Best Customer Retention Tips From Experts for Business Growth

6. Focus on Customer Retention

Improving cash flow health in the e-commerce landscape isn’t just about cutting expenses. You also need to find ways to constantly increase your operating revenue. There are various ways to do this, from investing in new, innovative products to expanding your marketing campaigns.

However, perhaps the most valuable strategy of all is to find ways to keep your customers coming back for more. Studies show that companies with a strong focus on customer experience have a 75% higher customer retention rate. What’s more, 86% of loyal customers will recommend brands to friends and family members, generating extra revenue.

So, how do you improve customer experience and retention? The first step is getting to know your customers. Investing in CRM technology can provide business leaders with behind-the-scenes insights into their customer pain points, their VIP clients, and even their opportunities for growth.

Some CRM tools, such as HubSpot, can even integrate with eCommerce platforms, making it easier to segment customers and offer them unique discounts or offers based on their interests. You can even use these tools to start working on a customer loyalty program, encouraging customers to purchase more from your store in exchange for rewards and points.

The more you invest in customer retention, the more your cash flow will thrive, as average order values and customer lifetime values increase.

Achieving a Healthier Cash Flow in eCommerce

Building and preserving a healthy cash flow in the eCommerce landscape has always been complex. The online world is an extremely agile, and often unpredictable, place. While bigger companies might have the capacity to withstand sudden changes in the marketplace, smaller brands often struggle to stay ahead of the curve. Fortunately, there are solutions out there.

With the right technology and a creative strategy, even the smallest eCommerce company can transform its cash flow and achieve incredible goals.