9 ways to manage e-commerce cash flow in B2B

The report also found that 1 in 7 small business owners were left unable to pay employee wages due to cash flow issues, equating to a total of 2.2 million individuals not receiving their pay on time. Meanwhile, 38% said they were unable to pay their debts.

On average, SMEs miss out on £26,000 of work due to cash flow restrictions.

A key driver of these cash flow issues is that SMEs struggle to get paid for their work, which causes a liquidity strain. On average, SMEs miss out on £26,000 of work due to cash flow restrictions.

Clearly, poor cash flow poses a significant challenge to small businesses and, as we cover in our article on how to deal with late and missing invoice payments, such issues can ultimately lead to insolvency. This guide will empower you to better understand, manage and protect your cash flow. 

Why is cash flow important for e-commerce merchants?

With 82% of small business failures attributed to cash flow issues, B2B e-commerce sellers can’t afford to take any chances. Cash flow is the lifeblood of any such business, ensuring smooth operations, supporting growth, and providing financial stability. By effectively managing their e-commerce cash flow, merchants can optimise their working capital, enhance profitability, and position themselves for long-term success.

Below are 6 reasons why cash flow is important for B2B e-commerce merchants.

1. Working capital management

Cash flow ensures that B2B merchants have sufficient funds to cover day-to-day operations, such as purchasing inventory, paying suppliers, and meeting other operational expenses. Positive cash flow allows businesses to maintain a healthy balance between incoming and outgoing payments, avoiding liquidity issues and potential disruptions in the supply chain.

2. Inventory management

Cash flow helps B2B e-commerce sellers manage their often significant inventories efficiently by ensuring they have enough funds to replenish stock and maintain optimal product levels. Adequate cash flow enables businesses to avoid stockouts, fulfil customer orders promptly, and minimise holding costs associated with excess inventory.

3. Growth and expansion

Cash flow provides the necessary capital to invest in marketing initiatives, technology upgrades, expanding product lines, entering new markets, or acquiring other businesses. Positive cash flow supports day-to-day operations while allowing businesses to seize growth opportunities and stay competitive in the market.

4. Debt management

Many B2B e-commerce merchants rely on external financing, such as loans or lines of credit, to support their operations. Maintaining healthy cash flow is crucial for effectively managing debt and meeting financial obligations. By having a positive cash flow, businesses can make timely debt payments, reduce interest costs, and maintain good relationships with lenders, thereby improving their creditworthiness for future financing needs.

5. Risk mitigation

Cash flow provides businesses with the flexibility to handle unforeseen expenses, such as equipment repairs, legal issues, or disruptions in the supply chain. In challenging times, having a strong cash flow can help B2B e-commerce merchants weather the storm, mitigate risks, and maintain stability in their operations.

What is a good cash flow?

Good cash flow refers to the consistent and positive movement of cash into and out of a business over a specific period. It indicates that a company has enough cash inflows to cover and exceed its outflows, enabling it to meet its financial obligations and invest in growth opportunities. Positive cash flow signifies financial health and stability.

Calculating your e-commerce cash flow

B2B e-commerce cash flow reporting often involves the “direct method”, which records all transactions as actual cash inflows and outflows during a given period. Cash flow is calculated by subtracting the sum of the outflows from the sum of the inflows.

For more complex companies – such as those with non liquid assets such as real estate or equipment – may want to use the “indirect method” of calculating cash flow. This method includes factors such as depreciation and amortisation of debt. Your accountant or bookkeeping department should be able to advise on which method of e-commerce cash flow reporting is most appropriate for your business.

How to manage cash flow in your B2B business

Let’s take a look at nine B2B cashflow solutions and management tips that will help you stay on top of changes and fluctuations in your business and keep the cash flowing in.‍

1. Cash flow forecasting‍

You’ve probably heard the term before, but exactly what is a cash flow forecast?

Cash flow forecasting in e-commerce uses business information like payables, receivables, trends and hiring plans to extrapolate what your cash flow will be like in the future. It’s basically about understanding how cash will flow in and out of your business over the next 6, 12, 24 or 36 months, so nasty surprises are a lot less likely.

There are a few different cash flow forecasting tools out there, including Futrli, Float, Fluidly, Cash Analytics and Anaplan. Some will even integrate with your accounting software – forecasting has never been so easy!‍

How to create a cash flow forecast

1. Choose a time period. 6 months is a good place to start, but you might want to forecast for a longer period if you need to look further into the future.
2. Map out how much you expect to make from sales during that period. Try breaking it down by month so you can see the numbers in more detail.
3. Include recurring expenses, future hires and expected investments. This keeps a buffer for unforeseen expenses (there will always be some!)
4. Look at previous years’ figures. This will show seasonal fluctuations so you can be more accurate. If you expect to make more or less than last year, make sure you include that. Remember, a cash flow forecast is only useful if it’s realistic.
5. Factor in any new products or services you’re launching. This could mean more profit, or it could mean you don’t recoup costs for another 6 or 12 months. Whatever it is, put it in your forecast.
6. Prepare best-case, worst-case, and most-likely scenarios. There are always lots of factors to consider – market changes, customer habits, seasonal differences. To be extra prepared, create cash flow projections for a bad, stable, and brilliant next 12 months.

2. Automate your invoice chasing

With 87% of businesses reporting late payments, chasing debt is an inevitability for B2B e-commerce sellers. However, you can minimise the impact this has on your cash flow by automating your collections. 

Strict credit control and automatic invoice reminders are vital. You won’t have to send manual emails to your clients’ accounts departments, or keep checking your own company account to make sure payments have come in.

57% of business owners have been forced to ditch holiday plans in favour of chasing late payments, so if you want to hold onto your down time, invest in some software that does it for you. Some of the best solutions include Chaser, Upflow or Esker – these will help automate your collections sequences while protecting your commercial relationships.  

3. Track your expenses meticulously

It’s easy for business costs to get out of control, so if you’re not the type to check the company account balance every day, it might be time to start. For this, you’ll need to assess your business’s current fixed and variable costs.

Fixed costs

Fixed costs are the expenses which a company must pay out each month. They are independent of other business activities and do not change with production levels or sales. They include:

• Full-time staff salaries
• Rental lease or mortgage payments
• Utilities
• Insurance
• Office supplies
• Equipment and maintenance
• Subscriptions to services/software
• Depreciation of assets
• Marketing and advertising costs

Variable costs

On the other hand, variable costs are those expenses which fluctuate in accordance with the amount a company produces or sells. They include:

• Direct labour costs
• Sales commissions
• Marketing campaigns and promotions
• Taxes
• Operational costs
• Raw materials
• Vendors and contracts
• Part-time employee salaries and contractors

Although some of these payments are already committed, others may have potential to be reduced. The member of your team responsible for monitoring accounts should sit down and go through all expenses in detail, before making recommendations for areas to cut back on. It’s not the most exciting task but it’s really useful when it comes to improving cash flow. You’ll see your expenses drop next month, and you’ll make a significant saving over the year.

4. Hire a bookkeeper and/or accountant

Sometimes you need an expert to take a look at things for you. Business owners have to distance themselves from day-to-day admin as their business gets bigger, but it’s essential to retain an overview of the finances. A trusted bookkeeper or accountant can be the person who takes care of all the details while providing you with the big picture.‍

What’s the difference between a bookkeeper and an accountant?

A bookkeeper keeps an accurate and complete record of the financial transactions of a business. They will take care of the manual accounting processes, like recording figures and monitoring cash flow. 

An accountant will focus on the bigger financial picture and use your financial data to help and advise you, making sure you meet your legal responsibilities. They can also make predictions and recommendations, so you’ll know how to move forward and when to spend or cut back. 

Depending on your business situation and current employees, you might need one more than the other. Or you might even need an in-house finance leader if your operations are expanding. Either way, the sooner you hire, the sooner you can feel more confident about cash flow.

5. Focus on Customer Retention

There are several ways in which customer retention can positively impact cash flow for B2B e-commerce businesses. We’ve listed some of them below. 

Repeat Purchases

Retained customers make repeat purchases from your business. Repeat purchases generate additional revenue without incurring any customer acquisition costs flowing out of your business.

Reduced Marketing and Acquisition Costs

Acquiring new customers typically requires marketing efforts and associated expenses. By focusing on customer retention, businesses can reduce the need for extensive marketing campaigns aimed at acquiring new customers, thereby conserving resources and reducing cash outflows.

Increased Customer Lifetime Value (CLV)

Retained customers tend to have a higher CLV compared to new customers. CLV represents the total revenue a customer generates over their lifetime as a customer. By fostering customer loyalty and keeping customers engaged, businesses can increase the average CLV, resulting in better overall cash flow.

6. Implement a Pricing Strategy

Optimising pricing and margins is crucial for managing cash flow effectively in B2B e-commerce. Here are some key considerations and strategies to help you get started.

Cost Analysis

Conducting a comprehensive cost analysis can help you understand all the expenses associated with your products or services. This includes direct costs (e.g., raw materials, manufacturing, shipping) as well as indirect costs (e.g., overhead, marketing, administrative expenses). This will help you set appropriate pricing that covers expenses while ensuring profitability.

Competitive Analysis

Conduct a thorough analysis of your competitors' pricing strategies. Identify how your products or services differentiate from theirs, and determine whether you can command a premium price based on those differentiators. Striking the right balance between pricing competitively and maintaining healthy margins is essential for sustained profitability.

Dynamic Pricing

Explore the possibility of implementing dynamic pricing strategies. This involves adjusting prices based on factors such as demand, seasonality, market conditions, or customer segments. Dynamic pricing allows you to optimise revenue and margins based on real-time market dynamics.

Regular Price Reviews

Conduct regular reviews of your pricing strategy to assess its effectiveness. Monitor market trends, changes in costs, and competitive dynamics to determine whether adjustments are necessary. Regular price reviews ensure that your pricing remains competitive while maintaining profitability.

7. Negotiate Payment Terms with Suppliers

It’s not just your buyers who can benefit from payment terms. Negotiating better payment schedules with your own suppliers is an important aspect of managing cash flow in B2B e-commerce.

But simply asking for 60 day terms on your first order might not be the most successful way to go about this. First you need to have built a strong relationship based on trust and mutual benefit. A solid relationship can provide a foundation for open and constructive negotiations. You’ll also need to consider the needs and challenges that your supplier faces. This understanding will help you identify potential areas for negotiation that can benefit both parties.

Once these foundations are in place, it’s time to consider what kind of payment set up is going to work for you and your supplier. You could:

• Explore the possibility of securing volume discounts based on the quantity of products or services you purchase. Suppliers may be willing to offer reduced pricing or better payment terms in exchange for larger or more frequent orders.
• Request extended payment terms, allowing you more time to pay invoices. For example, instead of the standard 30-day payment window, negotiate for 45 or 60 days. This will help you manage your cash flow by providing additional time to generate revenue before making payments.
• Inquire about early payment incentives or discounts that suppliers may offer for prompt payment. For example, suppliers may be willing to provide a discount if you pay within 10 days.
• Propose the option of making payments in instalments rather than a lump sum. This can help ease cash flow strain by spreading out payments over a specified period, reducing the immediate financial burden.
• Engage in collaborative planning with your suppliers to align production schedules, inventory levels, and order quantities. By synchronising your operations with suppliers, you can reduce lead times and optimise inventory management, which can positively impact cash flow.

Remember, negotiations should be approached in a collaborative and respectful manner. Focus on finding win-win solutions that benefit both your business and its suppliers.

8. Optimise Average Order Value (AOV)

Average order value (AOV) is an important metric in B2B e-commerce because it directly impacts cash flow in several ways.

Increased Revenue

Higher AOV means each transaction generates more revenue. This leads to a larger influx of cash into the business with each order, increasing overall cash flow. By focusing on increasing AOV, businesses can generate more revenue without the cost of acquiring new customers.

Improved Profit Margins

A higher AOV often indicates that customers are purchasing more products or higher-priced items in a single order. This can help improve profit margins as the incremental revenue from the additional items typically comes at a lower cost compared to acquiring new customers. 

Economies of Scale

Larger orders tend to benefit from economies of scale. When customers order in higher quantities, it allows businesses to optimise production, packaging, and shipping costs. This can reduce per-unit costs and increase overall profitability, positively impacting cash flow.

Cash Flow Stability

B2B e-commerce businesses can have longer sales cycles, which impacts cash flow. A higher AOV allows businesses to achieve revenue goals with fewer transactions, reducing the risk associated with fluctuations in the number of orders. This can contribute to a more stable and predictable cash flow, which is important for financial planning and sustainability.

9. Boost cash flow with a smart payment solution

Small business owners can often feel helpless when clients don’t pay up. Over a quarter of SMEs dealing with late payments have paid their own suppliers late, and 28% of business owners have even cut their own salary to offset restricted cash flow. 

It doesn’t have to be this way. Sometimes, all it takes to ensure timely payments – and therefore improved cash flow – is providing your customers with payment options that are convenient and simple.

Take Hokodo’s B2B Buy Now, Pay Later solution for B2B e-commerce, for example. We help you to offer trade credit to business buyers without any of the cash flow related drawbacks. How? It’s simple. Your buyers shop as normal and then choose to pay in 30, 60 or 90 days with Hokodo. Once the order has been shipped, we pay you upfront, thereby drastically reducing the time your business spends waiting for payment. Cash flow improves for you and your buyers, so all parties can buy, sell and do more. Better still, we have built plug-ins for e-commerce platforms Magento and Shopify, making integrations quick and easy, with minimal development resource requirements.

Don’t just take our word for it. We spoke with Ewoud Goorts, founder of plants wholesale platform FlorAccess, who said:

“With the world currently being in quite a flux, it’s key to have a firm grip on your cash flow and Hokodo really helps us in doing so. I would definitely encourage any other B2B entrepreneur or business owner to use Hokodo if they want to avoid any cash flow issues.”

If you would like to find out more about how Hokodo’s B2B Buy Now, Pay Later solution can help to keep your cash flow healthy, book a demo today.