8 Strategies to Increase Cash Flow for E-commerce Businesses
Due to changing inventory needs, it's essential for e-commerce merchants to stay cognizant of cash flow. Maintaining a steady stream of income allows business owners to keep their sites running smoothly while providing a consistent experience for customers. Below are eight strategies to increase cash flow for your e-commerce business.
- Increase Average Order Value
AOV is the average dollar amount customers spend when placing an order on your e-commerce website. Monitoring your AOV is a critical way to track the health of your business.
One key strategy to increasing your AOV is to create a minimum purchase amount to qualify for free shipping. Additionally, offering packaged products that complement each other and cost less when bundled can increase AOV while providing customers with a deal. Creating a valuable and personalized customer loyalty program is another tried and true method of increasing AOV.
- Create a Cash Flow Forecast
Even in a healthy economy, cash shortages affect many businesses The problem is that customers have not yet paid for the products they received at the time of purchase. Until payment arrives, businesses must cover their costs. Create a cash flow forecast to estimate your future sales and expenses. A 12 to 18-month forecast is a good rule of thumb.
In a cash flow forecast, you focus only on the revenue you will collect and the expenses you will pay during this timeframe. Do not pay attention to accounts payable, sales on credit or accrued expenses.
- Optimize Bill Payments
Creating an efficient billing process is a key way to increase cash flow. Automation is necessary and that should include formalizing your collections strategy. When accounts are approaching or at their due date, schedule reminders and develop the next steps should the accounts remain unpaid.
Payment terms affect cash flow. In addition to price, negotiate payment terms as well. While this is easier to do with new vendors, you may be able to renegotiate payment terms with longtime suppliers.
- Shorten the Working Capital Cycle
As with any business, you have a delay between purchasing your products and selling them. Your cash flow improves the less time there is between paying for an expense and receiving payment from a customer. For best results, look for a cash-to-cash cycle of less than a month.
Shorten your working capital cycle by boosting your inventory forecasting. That might mean stocking only items you expect to sell quickly or using strategies such as presales. With presales, you collect money from customers prior to paying your supplier. Customers receive a discount but you aren’t dealing with marketing costs.
- Keep Bookkeeping Current
Pay daily attention to your books. Keep track of all payments, receivables, and other transactions. Perform a monthly financial check to evaluate the trajectory of your business and catch patterns early. By putting more emphasis on higher-performing goods, you may increase your ROI and cash flow.
- Diversify Your Product Portfolio
By diversifying your product portfolio, you can reach new customers while increasing profits. When you carry only a limited number of products, at some point you will reach maximum customer penetration. Changing tastes, supply chain issues, and an increase in the price of raw materials can make your enterprise very vulnerable. Diversification can protect your business to some extent.
For example, if your e-commerce business focuses on women’s clothing, add a line of children’s clothes. Target loyal customer mothers who would like the convenience of ordering their kids’ clothes from a favorite store.
- Eliminate Unnecessary Expenses
Go over your accounts with a fine-tooth comb to eliminate unnecessary expenses. Consider looking for new vendors to cut expenses, especially if you’ve worked with the same suppliers for years. An alternative is renegotiating your contract with current vendors. Rather than lose your account, they may be open to saving you money with discounts or add-ons.
Analyze your marketing to see where you are getting the best bang for your buck. In areas where the money you are spending is not producing appreciable results, look into ways to replace it with more effective marketing. For instance, a small e-commerce business owner may find that taking an online course on social media marketing, or paying for an employee to take such a course, may prove just as effective as paying professional marketers to take care of your social media advertising.
- Launch a Private Label Credit Card
If you don’t yet have a private-label credit card for your e-commerce business, consider starting one today. By extending credit and offering rewards to your customers, revenue per customer increases. Digital private-label credit card issuers like Tandym also offer same-day settlements and help you save on processing costs, thereby improving your cash flow.
Increase Cash Flow with Tandym Today
Helping to increase cash flow is just one way Tandym works with you to reach your e-commerce goals. Our payments platform is designed to put the merchant first to help your business thrive. Learn more here and request a demo!
Shopify: Average Order Value: Definition + Five Ways to Grow Your AOV (2023) (shopify.com)
Bench Accounting: Cash Flow Forecasting: A How-To Guide (With Templates) | Bench Accounting
Small Business Chronicle: Diversification as a Marketing Strategy (chron.com)
Business.com: How to Reduce Expenses for Small Business Owners