Cash flow is the lifeblood of a business, but many businesses — especially e-commerce businesses — experience cash flow issues. Even when sales are booming, cash flow can be tight due to payment schedules and increased demand. As a result, you might be late paying vendors or suppliers, struggle to make payroll on time, experience stock outs during peak sales seasons, or miss opportunities to grow – like buying discounted inventory on a flash sale or investing in marketing to drive more business.
To help you overcome your cash flow issues and take your e-commerce business to the next level, we put together the following guide on all things cash flow and financing.
Cash Flow Clarity in e-Commerce
Last year was especially tough for cash flow, thanks to the COVID-19 pandemic drastically affecting e-commerce. From production and shipping delays, to prioritized items like PPE and other essential goods, to sudden demand for home office and sports equipment, you had to deal with a lot of issues on top of run-of-the-mill cash flow concerns.
To keep cash flows on track, it’s important to understand a variety of business metrics:
- Cash balance: The amount of cash you have on hand.
- Overhead: Any ongoing expense incurred to support your business.
- Revenue: The amount of income generated by sales; i.e. your gross sales.
- Growth rate: A measure of your business’s increase in revenue and potential to expand over a set period of time.
- Margins: A measure of your business’s profitability. It is the difference between your selling price and direct costs, expressed as a percentage of the selling price.
- Cash runway: A measure of how fast your company is spending its available cash.
Your cash runway gives insight into your cash flow and growth potential. For example, if it’s too fast, you won’t have enough cash surplus. If it’s too slow, you’re likely not investing in growth and could fall behind the competition.
Understanding your cash runway — also known as burn rate — is especially important when you’re planning to invest in something that doesn’t have an immediate ROI. For example, building software, entering into technology vendor agreements, or investing in a new product.
Looking at these key business metrics will make it easier for you to budget for current obligations and forecast for growth investments or events out of your control (like COVID-19 or trade wars).
Ways to Increase Cash Flow
Here are a variety of ways to increase cash flow in your e-commerce business.:
- Cut down on expenses: Take a look at your books to see if you can cut or reduce spending in certain areas. For example, do you have any unused subscriptions or can you get a better deal from suppliers or other vendors? Decreasing your costs will ultimately help you increase margins and boost cash flow.
- Negotiate longer payment terms: Consider asking your suppliers or vendors for longer payment terms. If you have an extra two weeks or 30 days to pay, you have more time to make more sales, get payouts, and more.
- Offer consumer financing options: To help drive sales, consider offering consumer financing options (like Affirm, Klarna or AfterPay) — especially if you have high-ticket items. Letting customers essentially “buy now, pay later” could be the difference between getting a sale and not.
- Monetize your site with ads: If you have your own website, you could monetize it with ads to bring in passive income.
- Consider raising prices: If your product is in strong demand, you might be able to raise prices, still make sales, and increase margins.
- Boost cash flow with financing: Outside funding can help you buy (and turn) inventory faster, bridge cash flow gaps between payouts, and make other growth investments. Continue to the next section to learn about the best financing options for e-commerce businesses.
Financing Tip: Find out what the difference is between a loan and a capital advance.
Best Financing Options for e-commerce Businesses in 2021
Businesses of all kinds can get financing from a variety of sources. Some are better suited for e-commerce businesses than others. To find the right solution for your business, compare options across the following factors:
- Approval time: How quickly will you get a funding decision and capital?
- Flexibility: Are the funds restricted (meaning, are you required to use them for a specific investment) or can you use them as needed?
- e-commerce-friendliness: Do they understand e-commerce needs or want to work with e-commerce businesses?
- Payout options: Will you get daily payouts or one lump sum that you’ll be responsible for budgeting?
- Application requirements: Do they require extensive financial paperwork, like tax returns, profit and loss statements, balance sheets, or personal financial statements — or, can you apply with limited documentation?
To help you narrow your search, we put together the following chart showing you how common business funding options compete on these factors:
As you can see, not all funding solutions are created equal — or designed for the unique needs of small to medium sized e-commerce businesses. The top three options for you include:
- Lines of credit: A revolving line of funds to draw from when you need cash. Most lines of credit providers only charge you for what you use.
- Credit cards: Credit cards are one of the most widely used products, but oftentimes cannot scale with your business. Plus, they can negatively impact your personal credit score if not used responsibly.
- Newegg Capital powered by Payability: Get accelerated daily payouts or capital advances to finance marketing, inventory or other growth investments.
FinTech companies like Payability provide a la carte financing solutions tailored for specific uses. Newegg partnered with Payability to create Newegg Capital, a friction-free funding solution for Newegg’s third-party marketplace sellers.
Newegg Capital utilizes Payability’s flagship solutions to give sellers the financial tools they need to invest in inventory, launch marketing campaigns, and invest in other growth areas:
- Instant Access: Get paid the next day every day on your marketplace sales.
- Instant Advance: Get an advance on your future receivables, up to $250,000.
The application process is simple, requiring zero credit checks and factoring in e-commerce-specific factors like your Newegg sales history, product category, and supply chain — and decisions and funding are made in as fast as 24 hours.
When you have cash and/or financing, you can continuously reinvest in your business, turn more inventory faster, and grow your business exponentially. For example, having daily access to your payouts allows you to invest more, accelerate scaling and reach new growth. You’ll smooth your cash flow issues, be able to sell on your own terms, and take on new opportunities for growth.
If you’re already a seller on Newegg, you can apply here for Accelerated Payouts or a Capital Advance or by clicking the appropriate buttons from within your dashboard. Get started by logging into your Newegg Seller Portal account today.