Fixing the Chaos of E-Commerce Cash Flow
Cash flow management is a persistent challenge in e-commerce due to delayed payment cycles, supplier agreements, fluctuating inventory and inconsistency in landed costs.
Unlike traditional businesses that operate on predictable billing cycles, e-commerce companies deal with extended settlement periods from platforms like Amazon, Shopify and PayPal, as well as international transactions and chargebacks that further complicate things.
All of these factors combined can create a fair amount of chaos. This makes it difficult to manage and properly predict cash flow, which we all know is the lifeblood of any business.
Enter fintech!
Leading fintech vendors have made huge advancements in relation to e-commerce accounting (AKA: Inventory accounting). Top solutions bring the PO-to-payment process, inventory management and financing together — all in one convenient space. And that spells calm. Bye-bye, chaos!
Why All the Chaos?
There’s so much to inventory accounting, which is why a lot of firms avoid it. This, however, is a mistake. E-commerce represents a huge revenue opportunity, especially when you have streamlined processes in place and a solution that calms the chaos.
Still, no one can deny that cash flow is just harder for e-commerce clients because businesses face cash flow challenges that are distinct from other traditional industries.
Here’s why:
Payment cycles are delayed. Unlike brick-and-mortar stores that receive payment at the point of sale, e-commerce businesses often experience delayed cash inflows. Payment processors like Stripe or PayPal hold funds for several days before releasing them to merchants. On top of that, refunds and chargebacks can further complicate cash flow predictability.
Supplier terms don’t always align. Many e-commerce companies rely on overseas suppliers who require upfront payments or deposits before shipping goods. This creates a timing gap between when businesses pay for inventory and when they receive revenue from sales.
Inventory costs are high and unpredictable. Managing inventory is a balancing act. Overstocking ties up cash in unsold goods, while understocking risks lost sales and customer dissatisfaction. Seasonal demand spikes or supply chain disruptions can exacerbate these issues, leaving businesses scrambling for working capital at critical moments.
These factors combine to create a perfect storm of cash flow uncertainty that can derail even the most promising e-commerce ventures.
From Reactive to Proactive Accounting
For firms that do serve e-commerce clients, it's often with a reactive approach. Better known as the old-hurry-up-and-wait method. And we all know that can quickly lead to inaccurate cash flow forecasting.
Clients need real-time insight into their financial data (hurry up) to make informed decisions on such things as purchases, inventory and hiring. But the lags caused from settlement periods or international transactions create extended pauses (wait).
E-commerce clients need their trusted advisors to be forward-thinking partners who can anticipate cash flow gaps before they become crises.
A proactive approach can be a reality for e-commerce clients:
Early cash flow forecasting. By analyzing historical data and current trends, accounting professionals can create detailed cash flow forecasts that help e-commerce clients plan for upcoming expenses and revenue fluctuations. This allows businesses to make informed decisions about inventory purchases, marketing budgets and other investments.
Spotting red flags early. Proactive firms monitor key financial metrics like days sales outstanding (DSO) and inventory turnover ratios to identify potential cash flow issues before they spiral out of control.
Advising on financing options. When cash flow gaps are unavoidable, firms can guide clients toward appropriate financing solutions, such as short-term loans or lines of credit, ensuring they secure the funds they need without overleveraging.
But how do you get here? Technology is certainly part of the answer. The combination of high-octane fintech solutions and a firm’s expertise not only super boosts efficiency in serving clients but also enables firms to get ahead of financials to advise their clients with better insights and sharper predictions.
How Fintech is Revolutionizing Cash Flow Management for E-Commerce
The rise of high-powered fintech solutions is a game changer for firms. Powerful new tools make it easier than ever to manage cash flow and provide proactive support to e-commerce businesses.
Top solutions seamlessly integrate the core functions required to support e-commerce businesses effectively and efficiently, including:
Automated payment workflows. Procurement-to-payment automation simplifies accounts payable processes by automating invoice tracking and payment scheduling. This reduces administrative burdens and ensures timely payments to suppliers.
Dynamic inventory management. Leading fintech platforms specialize in inventory management, offering transparency into multiple channel sales and SKUs, inventory levels and accurate landed costs. This helps e-commerce businesses maintain optimal stock levels without tying up excessive amounts of capital.
Easy financing. During times of cash flow shortages, for example, due to delayed freight or spiked demand that calls for large material purchases, top fintech solutions offer simplified financing options. The system moves cash via check, ACH or domestic wire transfer. The system pays the vendor, and the business pays the platform.
The best platforms are offering all-in-one solutions for e-commerce. And that spells success for firms and their clients.
Turning Chaos Into Clarity
E-commerce may be a fast-moving industry fraught with financial challenges, but it’s also one filled with opportunity for both business owners and their advisors. By understanding the unique dynamics of e-commerce cash flow, adopting a proactive advisory mindset and embracing fintech innovations, accounting professionals can help their clients turn chaos into clarity and enjoy a lucrative new advisory revenue stream.
