This guest post is from our friends at Payability
Cash Flow is defined by the amount of cash coming into and going out of the business. This cash is typically measured by bank account balances. For Amazon Sellers this cash coming in is mostly the bi-weekly payout of sales by Amazon. Cash going out can include inventory and expenses like rent, utilities, taxes, and salaries.
Cash Flow can be described as negative cash flow, which means that more cash is going out of the business than coming in, and positive cash flow – more cash coming into the business than going out. In order for a business to survive it has to have consistent positive cash flow: cash from sales is outpacing the expenses required to make those sales. Seems simple, but even very profitable businesses can experience cash flow issues and negative cash flow as a result of payment terms: the time it takes to receive cash from sales.
How Cash Flow Works in Online Marketplaces
A supplier for retail has cash going out to supply inventory and cash coming in after the sale to the consumer. In the world of online marketplaces, the sale happens really fast: purchases occur in milliseconds, shipments in minutes and deliveries in hours. In order to have this sales transaction completed so quickly, the online marketplace is similar to brick and mortar retail as it needs inventory on hand. But unlike brick and mortar retail with cash exchanging hands or credit card payments reconciling in 24 hours, the cash payout to suppliers can lag behind in weeks. And herein lies the cash flow issue.
The time between when you purchase the inventory to when you get paid from Amazon for the sale can sometimes be weeks, leaving you in the red as your funds are tied up. When funds are tied up, there’s not enough cash to purchase new inventory which slows your sales and can snowball into larger issues.
Amazon Seller Payment Delays
Cash flow issues are common for Amazon Sellers because there is a delay between when sales happen and when the Seller is paid by Amazon. Even if you speed up your inventory to just-in-time or dropshipping, this 2 week delay can cause negative cash flow leading to major issues for an Amazon Seller.
Typical issues for Sellers:
- Decreased inventory levels
- Missed sales
- Loss of Amazon Rank
- Late payment fees
Time is Money: Take charge of your cash flow
Without changing the amounts of incoming cash and outgoing cash, how can you overcome this period of negative cash flow? The only variable left is time; specifically to speed up the cash coming in, and time is money.
How do you do increase your cash coming in?
- Add additional sales channels/marketplaces (sell directly on your own ecommerce site, or add in eBay) with faster payment terms
- Get paid each day for current Amazon sales with Payability
- Take out a line of credit at the bank and use it as needed to restock
- Consider a loan to keep cash on hand
- Ship out faster with FBA or use a faster FBM shipping method
With cash coming in, and a consistent positive cash flow an Amazon Seller can increase their profits quickly by:
- Investing in inventory more frequently
- Selling more items
- Ranking higher on Amazon
- Negotiating better pricing with your suppliers
- Eliminating late payment fees
With these tips to help your business speed up incoming cash flow, you can turn negative cash flow from marketplace payment delays into increased profits in no time. And after all, time is money.
Interested in learning more about getting daily paid daily for your Amazon Sales? Sign up with Payability via the TaxJar link and receive a $100 Amazon Gift Card upon activating and going live with your account.
About the Author
Alison Sperling is the Director of Marketing at Payability. Alison completed her MBA with a concentration in Finance from Syracuse University in 2011. She has 2 cats and volunteers with several rescue organizations.