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A 4-Step Guide to Better E-Commerce Cash Flow Cycle Management - What to Know

With the holiday season in full effect, you’ve probably prepared your e-commerce stores for a flurry of holiday orders that are going to come in faster than an avalanche. This digital avalanche can leave more damage if you aren’t prepared.

The holiday season is known as the grandest stage of them all for every e-commerce store because it has shown to be the most profitable time of the year, time and time again. As consumers earn more money to buy everything their heart desires every holiday season, most businesses will make 20 to 40 per cent of their annual revenue during this brief period alone.

While things may seem great in terms of your holiday preparation from product inventory to your marketing strategy, the chances are that you’re missing out on one more crucial component: your business’s cash flow cycle.

Why cash flow cycle is important

The cash flow cycle of your business indicates how and when your business gains revenue through sales and services and how and when it spends the cash that it has. Without a properly-managed cash flow cycle, your e-commerce business will struggle and miss out on valuable opportunities, driving customer dissatisfaction in the process.

If you’re looking to seize seasonal opportunities during the holidays with your eCommerce business, here’s how you can manage your cash flow with ease:

Step #1: Have the necessary cash on hand

Before you manage your cash flow cycle, it is important to have the necessary cash on hand first so that you can start tracking both the inflows and outflows that come with your transactions. You can purchase inventory, take on various marketing initiatives, increase staff, and do anything else that can draw customers to your business.

Step #2: Compile your financial reports for the preceding years

Compile previous cash flow data from the previous year to have a benchmark and pieces of data you can objectively gauge your performance with. If this is your first year in business, however, then it is best to draw an estimate based on what you know about your industry.

Step #3: Go over your current cash flow statements

Once all the prerequisites are all taken care of, you can start reviewing your current cash flow statement in order to find everything that you have to work on. When going over your current cash flow statements, look for various opportunities that can provide a cash infusion, such as openings to collect outstanding accounts receivables.

Step #4: Review your credit policy and check on any current receivables

To keep things running smoothly, you’ll need to check whether or not your accounts receivables are almost due or have been long owed already but have not yet been collected.

Then, you can check whether or not your current credit policy is working for your business’s finances or harming them. Your current experience with collecting accounts receivables will serve as a guide in determining whether or not you’ll have to make necessary adjustments in your policy, such as:

  • Changing your invoice’s due date terms from a 45-day period to a 15-day period instead

  • The addition of any early payment incentives

  • Revisions in payment terms or instalment options

It is especially important to ensure that your credit policy works well enough to keep your business afloat amidst a higher amount of instalments and receivables this coming holiday season. Additionally, you should also take note of how your business can adapt to a higher influx of orders when it comes to taking care of various accounts payables to avoid any problems with debt.

Being able to manage your business’s cash flow cycle properly and fine-tune it for the holiday season is a guarantee for attaining success and stability without having to succumb to the pressures of higher demand. Before you get the ball rolling, follow this quick four-step guide to ensure that your e-commerce’s cash flow cycle is running in the right direction.

If you are looking for an e-commerce accountant in Australia, get in touch with us to see how we can help.

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