Cash Flow

Everything You Need to Know about ECommerce Cash Flow

Everything You Need to Know about ECommerce Cash Flow

What Is ECommerce Cash Flow?

Whether you're just starting out or have been in business for a while, you're probably familiar with the concept of eCommerce cash flow. For your finances and operations to run smoothly, this variable must remain balanced, but issues with cash flow in online businesses are more common than you might think. As an overview and for the purposes of this short guide, it is worth sharing a general concept. 

Chron Small Business explains, “Cash flow is composed of cash inflows and outflows based on three types of activities: operating activities, investing activities and financing activities. Cash outflows are monies paid out of the business. Cash inflows are monies paid in. A cash-flow statement only considers monies actually transferred and does not include assets or liabilities that do not result in an exchange of money (such as those extended on credit). The Securities and Exchange Commission requires all public companies to produce a quarterly cash-flow statement.” 

Since a company receives and spends cash, its cash flow can be positive or negative:

  • When cash flow is positive, more money enters than leaves the business.
  • Bills, payroll, inventory purchases, etc., lead to negative cash flow for the company.  
  • In the same way that positive cash flow does not necessarily represent long-term profits, negative cash flow does not automatically imply long-term losses. 

It is also essential to disambiguate cash flow from profitability. As Shopify; details, “A profitable business can still be unable to pay its bills. Similarly, just because a business is meeting all of its financial obligations doesn’t mean it’s profitable. Profit is a basic small business accounting term, which really only exists on paper. Measuring profit is a particular way of looking at a business. It doesn’t tell you a whole lot about how the business is getting by day-to-day.”

Do not worry if you are facing an unfavorable eCommerce cash flow situation. The scenario is not uncommon among online businesses, and although it can generate some pressures and consequences, there are modern financing solutions that can assist.

In the following section, you'll find some signs that your cash flow needs a boost.

Related: Amazon Inventory Financing: Expand Your Vision

Early Signs of ECommerce Cash Flow Issues  

Perhaps you are already disciplined enough to review your balance sheets regularly. However, at first glance, you might miss early and essential signs that your business is experiencing eCommerce cash flow problems.

Read the following to see if one or more resonate with your current situation.

Some items are out of stock, and you’re not able to purchase more

Insufficient cash flow makes it impossible to purchase inventory without going into debt. You may not be able to obtain credit quickly or on favorable terms even if your business urgently seeks it. When your brand and service are in high demand, this can become a real emergency.

You’ve been struggling to meet payroll on time

You may find yourself running at the last minute to pay your employees or, worse yet, have had to delay your pay and negotiate to pay retroactive salaries. These are telltale signs of an eCommerce cash flow problem.

You’ve been postponing or canceling personal financial priorities

This early sign may look like using your personal funds, lines of credit, savings, or even your credit cards to keep operations up. You may even face the hard choice between an individual or family-related project and running the company for a few more weeks. You may have seen an impact in your ability to cover a personal emergency, even if you're temporarily maintaining your business to recover eCommerce cash flow stability. 

You’ve canceled essential business services that help you grow

You’ve been forced to cancel contracts and apps related to marketing, research, or innovation. The reduction or elimination of many of these items has made you notice your business is not growing at the same pace. The eCommerce cash flow issues in your business may make it difficult to budget for these expenses that are so beneficial for your company.  

Even though these circumstances can be highly stressful and unfortunate, know that you can succeed and continue growing at a healthy pace with the right financing tools.

Related: Financing Options for Amazon Sellers  

How to Find Innovative eCommerce Cash Flow Financing Options

With the funds you had at the beginning, you started your online business and built it as much as you could. After a few months or years, the time has come for you to make a financing decision due to eCommerce cash flow issues, or you just want to inject some capital without acquiring debt. In order to respond to this challenge and take advantage of new market opportunities, you will need reliable and stable cash flow. 

Asking yourself the following questions may help you decide on financing options: 

  • What is the purpose of seeking financing alternatives?
  • What is the deadline for receiving the funds?
  • Do you want to pay interest, or do you intend to pay off the debt completely each month?

The answers can help you narrow down your search from the many options available. In your investigation, you may come across traditional loans from banks, business credit cards, or loans for small businesses. However, all of these have a series of disadvantages because they were not explicitly designed to balance eCommerce cash flow.

Fortunately, there are also eCommerce-specific lending options for online sellers. ECommerce sellers like you can take advantage of this type of industry-specific financing option to access the cash you need to operate your business. 

Here are some differentiation factors of these unique solutions:

  • This type of financing differs from traditional bank loans because it provides funds directly into your eCommerce business account, and their limits are based on your sales. 
  • Through their plug-and-play systems, they can communicate directly with your store. This means your sales and inventory are integrated with the financial instrument for seamless calculations.
  • ECommerce financing are also distinct from traditional bank loans or credit cards because they don’t require monthly payments or charge late fees. 
  • Payments for eCommerce financing are automatically taken after an online purchase happens. As a result, borrowers have access to cash when they need it.  

These innovative financing solutions are designed for eCommerce’s shorter sales cycles. By providing cash to power sales and inventory turnover, specialized financing options eliminate cash flow challenges and enable you to grow your eCommerce business. Their experts can become a crucial part of your team to address your financial challenges and design a strategy to help make your business successful. 

Seek for a financing partner who has eCommerce sellers in mind. They can help those who are just getting started or those who are seasoned entrepreneurs who want to grow. To make sure you get cash when and how much you need, your lender can connect directly to your Amazon Seller Central or Shopify; account. You can also benefit from interest-free, on-demand funds that are synced to your sales in real-time. Find a trusted financing solution that is able to put your business first by minimizing expenses so you can optimize your operations.