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Cash Flow Improvement Tips

Taking steps to improve your cash flow is a smart consideration for any eCommerce business model. By improving your cash flow you can ensure that your business is able to pay suppliers and employees on time, fostering better relationships with these stakeholders that can support your business in the long term. Additionally, cash flow improvement allows you to ensure that all operating expenses needed to keep your business running can be paid for. 

Creating a cash flow surplus will also benefit your business during more challenging cash flow periods. Surplus cash flow generated from effective cash flow management can be saved and used to cover bills when you are experiencing a cash shortage. 

Here are our cash flow improvement tips designed to help get your eCommerce business on track to improving your cash flow.

 

 

Speed Up Payments

One of the keys to improving your cash flow is to ensure that you are receiving all of the revenue that you are due. Cash flow problems can occur when your business needs to pay for the materials and supplies used to fulfil an order but you have not yet received payment for that product from your customer.

To speed up payments, invoice your customers as soon as you have made a sale. Chasing up overdue payments to ensure that you receive payments you are owed on time, allowing you to meet your expense liabilities on time. 

 

 

Tighten your credit requirements

To support speeding up payments and invoicing, you could also conduct credit checks or create stricter credit requirements for customers who wish to purchase goods from you on credit. 

This will avoid customers abusing credit with your business, and ensure that you are receiving revenue for stock sold in time to cover expenses for that period.

 

 

Increase sales

Increasing your sales revenue is also another way to improve your cash flow, and potentially even profitability. Sales revenue can be improved by increasing the price of your products, increasing your average order value or by diversifying your income.

Increasing prices can be a somewhat of a balancing act. You will want to ensure that you are increasing your prices enough to make a difference to your cash revenue, but also remain competitive. Take the time to analyse your competitors pricing to make sure that you are not pricing yourself out of the competition. 

Increasing average order value can be a somewhat less risky way of increasing your revenue. You can save money on advertising or gaining new customers by increasing the income from the customers that you already have. Some common ways to encourage higher average order values include; offering free shipping over a certain basket threshold, using upselling or cross selling techniques, creating product bundles, or offer discount codes for orders over a certain amount. 

Diversifying your income is a third way to increase your sales revenue. While this method requires the most effort out of the three suggestions, it has the potential to help your business to more effectively manage crises such as the recent COVID-19 pandemic as your business is no longer reliant on one source of income such as product sales revenue, which can leave you exposed to cash flow issues in the event of a crisis. 

As an ecommerce business there are several ways you could diversify your income. For example, you could bring physical products into the digital space in the form of eBooks, online classes or webinars, depending on your industry. Alternatively, you could start a subscription service offering weekly, monthly or quarterly packages. 

 

 

Offer discounts

If you find that you have a lot of cash tied up in old stock that you have not yet been able to sell, running discounts or promotions on these products could help to release that cash and improve your cash flow. 

Some customers may spend more money at your store if they believe they are getting better value for money by shopping for your discounted items, which can also improve your sales revenue.

Discounts don’t have to be a permanent feature on your website, you can run discounts and promotions as and when you need to shift more stock or increase sales to benefit your cash flow.

 

 

Reduce outgoings

On the other side of your cash flow statement, you can also look into your cash outgoings. Knowing how to reduce outgoings without compromising the quality or efficiency of your business can require greater analysis of your monthly expenses. 

If you have a good relationship with your suppliers, consider negotiating better deals on wholesale purchases with them to bring the cost of production down per item. Additionally, instead of investing in equipment for your business, consider leasing to help improve your monthly cash flow. Methods of reducing your outgoings will be unique to your business expenses, but taking the time to analyse your previous cash flow statements and identifying any cash expenses bottlenecks could help to improve your cash flow in the future.

 

 

Cash Flow loans

For an immediate cash boost to help you navigate a challenging period, cash flow loans can be another option for improving your cash flow in the short term. Cash flow loans are almost always a short term fix, however, and can create a distorted image of your cash flow. 

While you will receive more income in the short term, over the long term your loan will become another cash outgoing that needs to be accounted for each month. It is also likely that you will have to pay interest on your loan, which will further increase your cash outgoings. Because of this, it is advisable to only use cash flow loans as a short term solution, and not to become reliant upon them to get your business through each cash flow period. 

Instead, try adopting some of our other cash flow improvement tips to generate surplus cash that can be saved to support the business during negative cash flow periods. 

 

 

Conclusion/Next Steps

Any eCommerce business can take steps to improve their cash flow, and each of our tips will offer different solutions for different eCommerce business models. 

Taking the time to analyse and track your cash flow using a cash flow statement, or creating predictions using a cash flow forecast can help you to identify areas where your business could improve its cash flow. 

For guidance on how to get started with cash flow statements, forecasts and cash flow management, download the rest of our eBook chapters. 

 

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Read Next Chapter: Cash Flow Models

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