4 Tips to Avoid Cash Flow Challenges on Amazon

4 Tips To Avoid Cash Flow Challenges On Amazon

Xin Wang, Head of Finance

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The importance of having enough cash on hand is well known to all entrepreneurs and when it comes to selling online, things are no different. Even the best Amazon sellers experience decreases in sales and supply-chain complications, which can negatively impact cash flow. Negative cash flow can completely stifle your business’ growth in a myriad of ways.

Cash flow takes two forms — negative cash flow means that more cash is going out of the business than coming in, and positive cash flow means that more cash is coming in than going out. To succeed on Amazon, you need to have positive cash flow on an ongoing basis.

A significant amount of Amazon cash flow delays stem from the payment turnaround time from amazon. The two-to-three-week delay in payments from Amazon can cause negative cash flow which can lead to stockouts, missed sales, decreased inventory levels, loss of organic search rank, and late payment fees.

During specific times of the year (for example, the run up to Q4, aka the busiest time on the Amazon calendar), if you do not have sufficient cash flow available, you will not be able to take advantage of special promotions or lower upfront costs from wholesalers/distributors, which you would normally receive when you make larger purchases or pay faster.

To maintain a strong financial position for your Amazon operation, here are four ways to navigate and proactively prevent cash flow challenges.

Plan Properly.

Forecasting your cash flow and budgeting will help you organize your finances and give you peace of mind. By assessing your Balance Sheet and Profit & Loss statements, and ensuring that you’ve included all expenses (such as inventory, seller fees, advertising, payroll, office supplies, etc., you will be able to determine what is a necessary and fixed cost and what you might be able to spend less on.

Be Smart With Your Inventory.

The majority of sellers’ cash gets tied up in inventory, which is why an effective stock management system is key. By understanding your inventory turnover rate, supply chain lead times, seasonal sales fluctuations and, by being strategic with promotions and sales, you can optimise your stock level and release the cash for restock in time.

For a deeper dive into how Olsam leveraged data analytics and its financial forecasting capabilities to take on the global supply chain crisis and the toughest Q4 in decades, check out this article.

Negotiate With Your Suppliers.

If you have longstanding relationships in place with any of your suppliers, you can capitalize on these relationships and contracts for better pricing deals and payment terms. This could be in the form further discounts, other perks like free shipping, or extensions on the payment cycle. Periodic, effective, and structured negotiations with your suppliers are important to ensure ongoing profitability, healthy performance metrics, and a strong sourcing model and supply channel.

Look Into Financing Options.

If your business is experiencing cash flow gaps, you may want to consider external financing to give yourself the flexibility and freedom to explore avenues of growth. At Olsam, we partner with the leading working capital provider Uncapped to cater for our needs. We continue to keep closely monitor our payables and receivables to ensure effective financial management.

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Steady positive cash flow can help you increase profits quickly by increasing your sales velocity and allowing you to invest in new inventory more frequently. This subsequently enables you to rank higher on Amazon and negotiate better prices with your suppliers. Taking proper and strategic measures to avoid cash flow challenges on Amazon can help you transform negative cash flow into incremental profits and drive long-term growth.