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 strategies.
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 problems efficiently.
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 working capital.
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.
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.
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.