If you’re an online seller, you may know that cash flow can be an issue when you work with Amazon FBA. As cash flow is held hostage every two weeks, it impacts your ability to operate in real-time; ecommerce moves quickly.
Fulfillment by Amazon is an effective tool that can help your business grow, but you may need a little help to get there. Read on to learn more about Amazon FBA cash flow issues and how you can find industry-specific financing to solve them.
Amazon FBA, Cash Flow, and More
Before you dive into the impact Amazon FBA cash flow can have on your business, it’s essential to understand what it is and how it works.
What Is Amazon FBA?
When businesses sell via Amazon, they have the choice of two different distribution methods: FBA and FBM.
With FBA, or Fulfillment by Amazon, sellers ship their products in bulk directly to Amazon warehouses for storage. When a customer makes a purchase, Amazon then handles shipping for the product and manages any related customer service. Customers can also take advantage of their Amazon Prime benefits, which is a big draw for many sellers.
Amazon also takes on all risks and assumes all responsibility if there are any issues with delivery and logistics. This is a big advantage as sellers’ risks are reduced, and they do not have to invest, optimizing their own fulfillment.
With Fulfillment by Merchant, or FBM, companies ship purchases directly to customers after they make a purchase. The company also has to take care of any customer service issues that may arise. This is riskier for sellers but gives merchants full control of picking, packing, carrier selection and shipping methods.
FBA is the more popular method of the two, although many sellers use both. According to Jungle Scout, 57% of third-party sellers only use Fulfillment by Amazon. Just 9% use Fulfillment by Merchant exclusively, while 34% rely on both methods.
What Is Cash Flow?
Cash flow is a key financial metric for any business. The Harvard Business School defines it as “the net balance of cash moving into and out of a business at a specific point in time.” It’s a critical way of measuring the health of a business.
Since businesses both receive and spend cash, cash flow can be positive or negative. Positive cash flow means that more money is coming into the business than leaving it, and negative cash flow is the opposite.
Cash comes into a business when you sell products or services or when you obtain financing (positive cash flow). It leaves the company when you pay bills, make payroll, purchase inventory, etc. (negative cash flow).
Negative cash flow doesn’t always mean that a company is losing money in the long run or having financial problems, just as positive cash flow doesn’t always imply profit. However, it’s an issue that all small business owners should keep at the top of their list when reviewing their financials. They usually do this with a cash flow statement, a document that reflects the cash movements of a business within a specific timeframe.
Related: Financing Options for Amazon Sellers
How Cash Flow Can Affect Your Amazon Seller Business
As a critical indicator of the health of your business, it’s no surprise that cash flow can have a significant impact. A lack of funds can make it challenging to maintain inventory levels, invest in growth initiatives like marketing, driving reviews and making your regular payments. Poor cash management can cause headaches and unwelcome surprises, as well as halt growth.
In the case of Amazon FBA cash flow issues, you can experience significant problems with your ability to function as an Amazon seller.
Problems Paying Staff
Have you ever considered what would happen to your employees if you run out of the cash necessary to pay their salaries? No matter the solution you choose, it’s going to be a hard decision with significant consequences. You could lose great employees, money, or even your business.
Unexpected Cash Troubles
If you’re a new business owner, you may still be learning the ropes when it comes to managing your finances. Cash flow issues can spring up out of the blue if you’re not paying attention to them. You wouldn’t be alone, though: 44% of small business owners with cash flow issues said they came as a surprise. Unexpected cash issues can lead to emotional stress, hard choices, and potential problems for your business. Every seller is competing for a greater piece of the pie; cash is key.
Unable to Purchase More Inventory
Without adequate cash flow, you can’t purchase the inventory you need without going into debt. Even if you can access credit, it may not be on favorable terms, especially if your business solicits it urgently. This issue can be particularly significant during high-volume sales periods and when you need to purchase inventory in bulk to secure products or better pricing.
Inventory Issues Impact Sales
Sold-out products can interrupt your ability to sell on Amazon. Besides the loss of sales, you’ll negatively impact your keyword ranking, something which many sellers have been cultivating for years. You’ll also lose out on customer reviews, and loyal customers may purchase from someone else and never return.
Putting Personal Finances at Risk
According to the QuickBooks State of Cash Flow report, 46% of small businesses have used their own personal funds to keep their business running. While this decision is understandable, it can jeopardize you and your family should your business fail.
Even if you’re floating your business until you have more cash flow, you could impact your ability to pay for a personal emergency. If pressed, you could also be forced to choose high-interest personal loans that are too expensive to be sustainable in the long term.
Impact Regular Business Operations
Marketing, research, innovation: would you keep these on the books in a cash crunch? Amazon FBA cash flow issues can motivate you to slash many of the first line items that are the same items that would help your business grow. Without sufficient cash flow, you may not be able to budget for these seemingly non-essential expenses that make such a positive impact on your business.
Financing for Amazon FBA Cash Flow Issues
If you’re feeling a cash crunch due to your FBA activities, you may be looking for financing. Luckily, ecommerce loans focus on online sellers and their unique business models.
This industry-specific loan type is an efficient, modern way to access the cash you need to run your business as an Amazon seller. Unlike a traditional bank loan, these financing options provide funds directly to your account, with limits associated with your sales. These companies use a plug-and-play system that allows them to communicate directly with your store.
Ecommerce loans are distinct from traditional bank loans or credit cards because they don’t require monthly payments or charge late fees. Instead, they automatically draw payments when the online seller makes a sale. That way, the borrower has access to the cash they need when they need it.
Whether you’re new to Amazon or an experienced seller looking to grow, Onramp Funds can help. We plug directly into your Amazon Seller Central account to know exactly how much cash you need and when you need it. Discover the differences with interest-free, real-time, on-demand funds synced to your sales.
Onramp puts you first, minimizing costs so you can optimize your business needs. Call us today to get started.