To help you manage cash flow effectively in your e-commerce business, we asked CEOs and founders this question for their best strategies. From leveraging pre-orders for cash flow to reviewing and cutting unnecessary expenses, here are the top ten tips these leaders shared based on their experiences.
- Leverage Pre-Orders for Cash Flow
- Automate Billing and Collections
- Utilize a Line of Credit
- Implement a Rolling Forecast
- Offer Early Payment Discounts
- Optimize Inventory Planning
- Adopt Dynamic Pricing Strategies
- Follow a Modified Profit First Model
- Produce to Order for Efficiency
- Review and Cut Unnecessary Expenses
Leverage Pre-Orders for Cash Flow
Relying on pre-orders has been a game-changer for managing cash flow. This strategy helped balance production costs with revenue, especially during new product launches. Instead of investing heavily in inventory upfront, we gauge customer interest through pre-orders. This way, we secure sales before production, reducing financial risk and ensuring that we’re producing items customers genuinely want.
For example, when we introduced our new line of under-eye masks, pre-orders gave us the capital needed to handle manufacturing and marketing costs. This approach not only stabilized cash flow but also created buzz around the product. Customers felt exclusive, and we had a clear picture of demand, making inventory management far more efficient.
Andrew Grella
CEO & Founder, Formen Makeup
Automate Billing and Collections
Automated billing and collections have been a game-changer for us. When we first started, keeping track of outstanding invoices manually was a nightmare and often led to delayed payments. Setting up an automated system ensured our invoices went out on time, and follow-ups for overdue payments happened without needing manual intervention. This not only saved us countless hours but also significantly improved cash-flow consistency.
Our automated system sends reminders and follow-ups to customers, creating a seamless experience. It reduces the need for awkward, direct reminders, making the process more professional. This method has led to a noticeable decrease in overdue receivables and has contributed to a more predictable revenue stream, allowing us to focus on what we do best: designing and delivering top-notch fashion accessories.
Fameez Haroon
Co-Founder, OTAA
Utilize a Line of Credit
Using a line of credit has been a game-changer for our e-commerce business, especially for managing fluctuations in cash flow. In the outdoor-gear industry, demand can be seasonal, with peaks during summer and holiday seasons. A line of credit offers us the flexibility to cover short-term needs without the stress of immediate repayment. It’s like having an emergency fund that we can tap into whenever necessary.
This strategy has allowed us to capitalize on bulk-purchasing opportunities. When suppliers offer discounts for large orders, we can use the line of credit to buy more inventory upfront, saving money in the long run. It also provides a safety net during slower periods, making sure we’re always ready for the next big sale or seasonal surge. The key is to use it responsibly, ensuring it complements our overall cash-management strategy without leading to unnecessary debt.
Erika Pacini
Head of Marketing, Outdoorplay
Implement a Rolling Forecast
Implementing a rolling forecast has been particularly effective for managing cash flow in my e-commerce business. This involves regularly updating financial projections based on real-time data and market trends, typically on a monthly basis. For me, this strategy provides a clear and current view of our financial health, allowing for more informed decisions regarding inventory purchases, marketing spend, and operational costs.
By staying agile and adjusting forecasts as needed, we’ve been able to avoid cash shortages, capitalize on sales opportunities, and maintain a steady cash flow, ultimately driving the business’s growth and stability.
Alex Taylor
Head of Marketing, CrownTV
Offer Early Payment Discounts
Offering discounts for early payments has been a game-changer for us. When we started giving a small percentage off for early payments, it was surprising how many customers jumped at the chance. Not only did this strategy improve our cash flow by bringing in money faster, but it also built stronger relationships with our customers. They appreciated the chance to save a bit, and in turn, we benefited from quicker receipts, helping us to reinvest in stock and keep the business running smoothly.
This approach reduces the stress of waiting on delayed payments and also keeps our customers satisfied. They’ve expressed appreciation for the opportunity to get high-quality rugs slightly cheaper, and it encourages repeat business. Early-payment discounts are simple to implement but incredibly effective at maintaining a healthy cash flow, which is crucial for any growing e-commerce business.
Connor Butterworth
CEO & Owner, Southwestern Rugs Depot
Optimize Inventory Planning
The one effective cash-flow management tip is inventory planning, which we have utilized for our e-commerce businesses. It helped us maintain a delicate balance between stockouts and overstocking that ensured a healthy cash flow and operational efficiency. We particularly used inventory management software to regularly revise the inventory levels, prioritize fast-moving items, and negotiate favorable payment terms with suppliers. In our personal experience, we’ve witnessed a significant boost in website traffic with a good inventory planning strategy.
Dhari Alabdulhadi
CTO and Founder, Ubuy New Zealand
Adopt Dynamic Pricing Strategies
One game-changer for our cash flow has been dynamic pricing. Adjusting prices based on demand, seasonality, or inventory levels has given us an edge in maximizing revenue and maintaining a healthy cash flow.
Picture this: during the summer, demand for outdoor fire pits and home spas skyrockets. We can increase prices slightly without losing customers because the demand is so high. When the colder months roll in, and demand dips, offering discounts or bundling products together keeps sales steady.
Using dynamic pricing also helps us manage inventory more efficiently. When we notice certain models of hot tubs are moving slowly, lowering the price a bit or offering a limited-time promotion can clear out that stock faster, freeing up cash tied in unsold merchandise. This constant adjustment allows us to stay competitive and responsive to market conditions, ensuring our business remains robust year-round.
Andrei Newman
Founder, Designer Home Spas
Follow a Modified Profit First Model
Cash flow used to be the #1 issue I struggled with in my e-commerce business because it’s highly seasonal with large cash outlays required in late summer/fall to fund my holiday inventory buying.
The one change I made that has been positively a game-changer is to follow a modified Profit First budgeting model.
I now have a dedicated bank account where my monthly COGS + 2% of sales goes into each month. This means that I am consistently setting aside money to not only replace my inventory but also budget ahead for growth and new product lines.
It took a Q4 cycle to get enough funds saved to see the difference, but now I wouldn’t think of running my business any other way. Cash flow is no longer on my list of monthly business challenges.
Tina Bar
Ecommerce Strategist & Store Owner at Welljourn.Com, Tina Bar Coaching
Produce to Order for Efficiency
We produce 80% of our products to order, which is ideal as it allows us to keep minimal stock. We cash in before we actually spend on production, and it helps us maintain a very healthy cash flow. We have an amazing distribution partner that has very quick delivery times, and by building in a buffer into the delivery timeline to the customer, it enables us to carry out the entire process in just a matter of days. No extra spend gets lost.
Will Baker
Director, Skirtings R Us
Review and Cut Unnecessary Expenses
Regularly reviewing and cutting unnecessary expenses has been a game-changer for our e-commerce business. It keeps our cash flow healthy and helps us stay nimble. Every quarter, we go through our expenses with a fine-tooth comb. Subscriptions, software fees, and even small recurring charges are checked. It’s surprising how quickly these little costs can add up. Canceling or negotiating these expenses has freed up significant cash.
Another key area is evaluating supplier contracts and shipping costs. We’ve found that renegotiating terms or looking for alternate suppliers can lead to substantial savings. Regular reviews ensure that we only spend on what truly adds value. This disciplined approach not only boosts our bottom line but also allows for reinvestment into higher-impact areas of the business like marketing or product development. It’s a simple practice but one that’s proven incredibly effective for maintaining a strong cash flow.
Sara Millecam
Director of Education, Beautiful Brows and Lashes
