How Can E-Commerce Stores Solve Working Capital Problems?
When compared to brick and mortar stores, e-commerce platforms
tend to have lesser overhead expenses, making them relatively
more lucrative. However, financial reports suggest that around
80% to 90% of e-commerce stores do not survive more than a few
years after their launch. Typically, intense competition and
mismanagement of working capital are regarded to be the most
prominent reasons behind their failure.
This is why businesses must focus towards effective ecommerce
store working capital management and optimise financial
Tips To Manage Working Capital Better For E-Commerce Stores:
Usually, poor working capital management is a direct result of
the mismanagement of inventory and vendor terms. To elaborate,
holding onto inventory for a long time harms existing
ecommerce store’s working capital.
Similarly, stringent vendor payment agreements often make it
challenging for e-commerce stores to maintain their working
capital when the payment has to be forwarded within a few days,
with a large bulk of products yet to be sold.
Regardless, with the adoption of sound
working capital management strategies,
ecommerce businesses can solve their operating capital-related
One such strategy involves availing funds via invoice
discounting. KredX’s invoice discounting platform allows
businesses to utilise their unpaid invoices to
get immediate access to working capital
within 24-72 hours*. Following are some tips that serve as
helpful working capital solutions for ecommerce stores -
Since e-commerce stores are heavily dependent on technology,
businesses must put their best foot forward when it comes to
upgrading it. Improving the quality of existing technology and
investing more in upgrading online trade practices will help
e-commerce store owners increase their revenue and retain more
customers. All of which will prove useful for maintaining higher
Accumulating inventory can be compared to a fixed asset that is
prone to depreciation. The longer an e-commerce store holds on
to its stock, the more it will lose its value (as new and better
products will circulate the market in the meantime). Also, the
longer it takes to clear inventory, the lengthier will be the
working capital cycle.
Offer Discounts On Debt And Encourage On-Time
As a means to encourage timely payment, businesses can extend
discounts on early settlement. It will encourage them to pay off
their debt faster and in turn, help to shorten the working
capital cycle. In case customers take a long time to pay for the
products, e-commerce owners may opt for invoice discounting
services to bridge the working capital gap. Until now, we at
KredX, have discounted over 5 lakh invoices and have helped
companies receive working capital within 24-72 hours*.
Similarly, businesses should make it a point to pay their
distributors and suppliers on time. It will help improve the
supply chain flow and will give businesses an upper hand when it
comes to negotiating terms of payment and discounts.
Like discussed, poor vendor terms tend to influence working
capital management negatively. This is why e-commerce stores
should factor in the time taken to dispatch goods to customers,
alongside the sales cycle of different types of products before
deciding relevant vendor terms.
E-commerce stores must consider modifying their business model
to make room for proper
working capital management. However, such modifications depend primarily on the type of
industry the e-commerce store belongs to.
Selecting A Suitable Financing Option
Often customers purchase goods on credit and promise to pay for
it after a period of 60-90 days, in such a situation, the
working capital of e-commerce stores tend to get influenced.
Under such circumstances, as a means to maintain healthy working
capital, e-commerce platforms can consider opting for financing
options like invoice discounting. By availing such financing
options, e-commerce businesses can optimise their operational
activities to a great extent. Doing so will help them to solve
their working capital challenges.
For instance, they can use their unpaid invoices to raise funds.
KredX is a leading integrated cash flow solution provider in
India, and so far, we have helped over 15000 businesses to solve
their working capital problems quickly.