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5 ways for ecommerce businesses to increase cash flow

An e-commerce merchant using a mobile phone and online tools to improve her cash flow.

It will come as no surprise that the ecommerce industry has experienced unprecedented growth in the past few years, and the COVID-19 pandemic only sped up this trend. In the US alone, online sales totaled $870 billion in 2021, a 50.5% increase from 2019. People were stuck at home, left with no choice but to order everything online. But even as lockdowns become distant memories in our “post-COVID” world, the inertia of ecommerce growth continues.

However, the current state of the economy has put a lot of strain on businesses worldwide. And ecommerce businesses are no exception, citing cash flow issues as a top concern. That’s why we’ve teamed up with Shopify to launch Shopify Bill Pay powered by Melio, so businesses like yours can enjoy increased cash flow and financial control while paying the bills.

It’s no secret that cash keeps doors open. That’s why it’s critical to understand common cash flow issues businesses come up against and effective ways to combat them.

Common cash flow challenges ecommerce businesses face

Here are some of the top issues online sellers come up against that affect cash flow.

1. Payout delays

One of the most significant issues for ecommerce businesses is the delay between the time of purchase and receiving payment from the online platform. This delay can leave businesses struggling to cover inventory costs while waiting for profits to show up. Unlike brick and mortar stores, where payments typically reconcile within 24 hours, ecommerce businesses need to be especially mindful of managing their cash flow to avoid overselling.

2. Siloed inventory tracking

Many ecommerce businesses sell their products across multiple channels, making it challenging to get accurate inventory numbers. This can have a direct impact on cash flow, as poor inventory management can lead to overselling or overstocking, both of which can be costly. If you’re using Shopify however, you can set up inventory tracking and prevent your inventory data from being so siloed. You can even analyze changes to inventory levels in the Inventory Reports section on Shopify.

3. Accounting mistakes

Ecommerce merchants are often accustomed to handling their books manually, which can lead to common accounting mistakes like typos and miscalculations. By not using cloud-based accounting software to streamline and automate their accounting processes, businesses can put themselves at risk of mismanaging their cash flow.

4. Invoices are due before you’ve been paid

It’s common for suppliers to require payment at the time of purchase. This means that ecommerce businesses need to pay their suppliers before they receive payment from their own customers, which can create cash flow challenges if not effectively managed.

5. Overstaffing

The difference between surviving and thriving can be whether or not you’re overstaffing. Hitting that headcount “sweetspot” can be challenging, but its importance cannot be overstated. Too much labor is one of the main issues pertaining to poor cash flow. Your best bet is to figure out the minimum number of people it takes to keep your company up and running and leverage temporary or freelance workers during busier periods.

How ecommerce businesses can increase cash flow

Cash flow challenges can be scary, but not impossible to overcome. The good news is that there are several steps you can take to increase your chances of success. Here are five ways you can take matters into your own hands and increase cash flow.

1. Delay unnecessary expenses and review your statement

Delay any unnecessary spending. For example, when cash is tight but you want to renovate your store, you can delay the project until a later date when you have more cash on hand. Or, instead of sending out physical mailers, a digital marketing campaign is a good alternative. It’s also wise to review your bank statement for any hidden fees or subscriptions. Your bank account will thank you later.

2. Leverage paying by credit card for accounts payable (AP)

It’s important to pay your bills on time–never early and never late. This enables you to hold onto cash longer while not risking any penalties. With AP solutions like Shopify Bill Pay, you can pay your bills with your credit card. This means your vendors get paid immediately. At the same time, you get to keep the extra cash on hand until your next billing cycle–giving you up to two months of extra float. These solutions also allow you to pre schedule payments so they go out exactly when they’re due; not a minute too early where you drain cash reserves, and not a minute too late where you are met with late fees or harm vendor relationships.

3. Bundle products

Bundling products that pair well together and offering an accompanying discount is never a bad idea. This allows for increased revenue while your customers enjoy a good deal. This is an easy way to increase average order value and get more sales through the door. You can also introduce subscription services or gift cards as a way to get upfront cash.

4. Strategically manage inventory

Inventory management is an essential part of a business’s profitability. That’s why it’s important to keep bestsellers in stock, or promote products that may be slower to move. This can lead to increased sales volume straight away, which gives you the money necessary to buy new inventory.

Boost your cash flow

These actionable steps are sure to help you get on top of your cash flow game and set you apart from your competitors. And as we wait for inflation to decrease, supply chain issues to improve, and labor shortages to stop, we know one thing for sure: cash flow management doesn’t have to cause headaches. With AP tools like Shopify Bill Pay, you can enjoy time saving tools that keep your cash flow top of mind at all times.

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.