Managing cash flow is an essential part of any business. There are other factors, such as profitability, business model, and others that play a major role in your business, but cash flow management is one field that has the potential to greatly affect it.
Without this skill, you might find it challenging to upscale your business. So, how do you manage cash flow in a dropshipping business? This article will cover all you need to know.
Assess Your Business’s Profitability
One of the most important factors to consider is ensuring that your business is making a profit.
If your business structure is not up to standard, then your business cannot thrive, no matter how good your cash flow management skills get.
Therefore, it is crucial to make sure all aspects of your business are performing optimally.
This means ensuring you place the right prices on your products as well as finetuning them to remove any inefficiencies. Ultimately, your goal should be to make a profit and not just sell.
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Send Out Invoices Promptly
Name: Photo by FIN from Unsplash
Alt text: An invoice, notes, and a calculator on a desk
A key role cash flow plays in your business is differentiating between outgoing invoices and invoices that have been paid.
Having an unpaid invoice means you cannot use it to cover expenses for your business. Hence, it is necessary to always send out invoices as soon as you can.
Discuss Payment Plans With Suppliers
Working with suppliers that sell at lower prices is a fantastic way to improve your cash flow. However, a flexible payment plan also plays a huge role in improving that flow.
The best dropshipping suppliers offer you the chance to discuss terms of payment and decide on what works for both of you.
You can time your payments based on your cash inflows, which is why you should always send out invoices to your customers so that you can always meet up with this arrangement.
Keep Track of Your Inventory
Always keep an eye on your inventory and take note of products that aren’t performing well.
These products negatively affect your cash flow because you are not seeing returns on the money you spent purchasing them.
The best way to fix this cash flow issue is to sell these underperforming products at a discounted rate or simply stop restocking the product once you sell out.
Likewise, you should pay more attention to items performing well and invest your cash there for better inflow.
When you are just starting, it is smart not to accumulate too much debt. That said, you might need to invest in some items to keep your business running smoothly.
In cases like these, it is best to lease and not buy. By leasing, you are given the opportunity to pay in installments over time and still have the cash flow for your business.
Furthermore, it is a business expense that you can write off on your taxes.
Consider Taking a Loan
Sometimes, all your business needs are some extra money to stay afloat. There are several options to choose from, such as CreditNinja, which offers easy loan approval to a business line of credit, among others.
It is up to you to decide how much you need and how to go about getting it. Keep in mind that you should only consider this option if the loan will beneficial to your business.
Stick to a Firm Credit Policy
Offering credit to your customers can be a great way to build trust and establish long-term relationships. However, it can be risky, especially if these customers do not make timely payments.
Therefore, if you want to follow this route, you need to make sure to create strict credit policies and stick by them.
For one, you should reach out to customers as soon as you notice a payment is late. Send out invoices immediately and confirm that your customers have paid.
Secondly, you can offer a payment-on-delivery option for frequent defaulters and take note of your accounts to discover customers who pay late.
Thirdly, you should always run a credit check on new customers who request for purchases on credit.
Reduce Expenses Wisely
When running a business, there is a chance that your business might be negatively affected by external factors.
During this period, it is only natural that you will want to cut back on some costs, and that is valid. However, you should be strategic and cut costs wisely.
For example, if you realize that your business is not performing well, you can temporarily end your graphic design subscription.
While it helps make your social media page stand out, it is something your business can do without for a while.
You should also consider reducing how much you spend on ads when you are having issues with your supply chains.
This is because you might not be able to receive the number of products you need for a high inflow of customers. Hence, you might end up spending money on clicks that do not convert to sales due to low stock.
Instead, you should opt for marketing strategies, such as SEO, that pull in customers organically.
Not only are these strategies effective, but they also help you save costs and generate sales.
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Most businesses cannot thrive or even survive without effective cash flow management. Fortunately, it is quite easy to implement.
All you need to do is settle down and organize your business.
Implementing this skill will not only free up capital but will also help to keep your business afloat.