How to manage your ecommerce business' cash flow
If you’re running and operating your own online store, you’re probably well acquainted with the pesky issue of cash flow management. If you're new to ecommerce, you will soon experience the surges in sales and and cash one month, then find yourself stretched the next time you need to order new inventory or settle your manufacturing accounts.
Unfortunately, those two things—sales spikes and accounts due—don’t always happen at the same time, and things suddenly get tight.
Consider how your business is run
For instance, unless you’re dropshipping, you’ll likely be placing your orders months (with tight payment terms or even upfront payment) before selling the product to your customers. And because ecommerce business tends to fluctuate seasonally, you won’t always have the ability to adjust your order volumes to keep pace.
Sometimes merchants who are feeling the pinch will seek out interim financing to float them through times like the ones described above. Debt financing alternatives can be a solution for sure, but there are risks—delays in approval time, founder liability, and steep interest charges are all considerations.
If you’re a merchant looking into financing alternatives, here are a few questions to ask yourself as you’re reviewing the options.
- How much do I need?
- How long will it reasonably take me to pay this back?
- How much will I pay in interest and fees?
- Do I need any other flexibility that the above questions haven’t covered?
Thinking through these questions as you evaluate the choices available will help you make a decision more efficiently, and hopefully without any unwelcome surprises.
Research your options for short-term financing
Short-term funding solutions, such as those offered by Amazon and PayPal have both benefits and drawbacks. Some benefits include flexibility in usage (use what you need), and quick application processes and approval times. Keep in mind that you may also need to provide collateral for the loan and the limits may be lower than you require.
Make sure you read the fine print on how loan interest is calculated — in some cases, annual compounding interest rates can stack up to between 30%-90%. Reviewing the information carefully and figuring out how quickly you’re reasonably going to be able to repay the loan will help you avoid any surprises when your statement arrives.
Get a free estimate from Onramp Funds
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