When it comes to the financial management of any business, cash flow sits at the top of any business owner’s concerns. Cash flow is essentially the lifeblood of a company, no matter how big or small it is. For that reason, small businesses should always keep their cash flow under control as it is an essential requirement of financial management and accounting for an eCommerce business. Here’s what you need to understand so you can control your cash flow effectively.

Why do accounts receivables play an important role in cash flow management?

This is one of the leading problems of small businesses when it comes to cash flow management. There’s an overwhelming number of businesses that struggle with past due receivables that leave them crippled and at risk of being bankrupt.

Let’s face it. If there’s no cash coming in, your products won’t be going out, meaning you’re losing business. That’s just the tip of the iceberg. This can introduce many problems on payroll, inventory, utilities, and a host of other costs associated with managing your business. There are a variety of strategies you can adopt to remedy or prevent this, such as:

Getting on the Same Page

It’s very likely that there may be a breakdown in communication that may have caused your customers to be confused about the payment. If customers or vendors are unclear about when their payment is due and how much is owed, then you can’t expect any cash coming from them.

A simple misunderstanding like that can be easily avoided by being proactive in informing your clients of their obligations. You need to state clearly when your bills are due and how much they’re supposed to pay.

Offer Incentives for Early Payment

Incentives are a good way to motivate clients and vendors to pay early and on time. These incentives can come in the form of a discount that would entice them for being diligent with their payments.

Subscription-Based Models

Instead of waiting for your customers to buy products from you, you can adopt a subscription-based model to keep a consistent and predictable cash flow coming in. This is a fantastic model for eCommerce businesses, much like what Netflix, Hello Fresh, and Spotify have been doing for a long time. The only difference is that you’re offering products instead of a subscription service. A steady supply of your products in exchange for a steady stream of cash is a win-win situation for your business.

Managing Your Creditors

Financial management and eCommerce accounting aren’t just about numbers. It’s also about maintaining good relationships with everyone, including your creditors. A bank is a type of creditor that acts as your financial backer. Treat them as if they are an important investor that needs to alert ahead of time for any problems with your cash flow. This can go a long way to ensure your backers continue to offer favourable credit terms to you.

Conclusion

Cash flow management is always at the centre of any business, even if you’re just starting out. Taking control of your cash flow can spell the difference between success or failure. It’s not even a question of size or influence but how well you manage a steady flow of cash coming in and out of your business.

Need help keeping your finances in order? The ECommerce Accountant is here to help business owners like you. We are more than just an online accounting firm in Australia. We are a group of innovative professionals with a passion for all things eCommerce. Never struggle with numbers and your finances again when you work with us. Book a free strategy session today!