The most direct way to scale is for eCommerce businesses by investing in inventory. However, buying inventory can get expensive quickly. To fund inventory purchases, you may need eCommerce working capital loans.
Working capital is the money you need to cover the day-to-day expenses of running your business. In eCommerce, this includes things like:
- Paying for inventory
- Shipping (including returns)
- Employee salaries and benefits
- Payroll taxes and government fees
As a small business owner, you may find yourself strapped for cash at the end of the month and desperate for a solution. The answer might be eCommerce working capital. It’s an outstanding loan that gives you the money you need based on your existing sales.
Why Is Working Capital Still a Problem for Ecommerce Entrepreneurs
Excess working capital can be invested in growth opportunities, and inadequate working capital can lead to cash crunches or even bankruptcy.
But getting the working capital you need to keep your eCommerce business running smoothly isn’t always easy. In some cases, entrepreneurs are not aware that they need to regularly monitor their working capital levels. Ignorance of the issue can be costly.
Even when your cash flow isn’t an issue, it’s still important to be able to plan for unexpected expenses. Maybe you need to hire a few more employees, invest in new equipment, or rent a giant warehouse. Whatever it is, having access to working capital means always being prepared for whatever comes next.
What Issues Does Working Capital Address
When you have substantial working capital, you have the flexibility to address issues that arise with your day-to-day operations. Some common problems that working capital helps small businesses avoid include:
- Payroll problems
- Inventory shortages
- Cash flow issues
- Service quality issues
Smarter Inventory Purchasing
One of the most important advantages of having working capital on hand is that it allows business owners to manage their inventory better. Instead of being forced to buy small amounts of inventory at different times, they will be able to stock up and buy larger quantities when necessary.
The result is less time spent ordering and taking delivery of shipments, which means workers can instead devote their time to more important tasks
Better Advertising Campaigns
Most advertisers use working capital to make sure they have enough money to pay for a particular advertising campaign. It’s also used to make sure the campaign has enough money in the reserve to guarantee that it will be able to keep running if unforeseen costs come up during the campaign.
This is an important aspect of running an ad campaign because it ensures that you are not putting all your eggs in one basket and that as many people will see your ads as possible.
Expanding into New Products or Markets
If you want to expand your company, you need to inventory how much money is at your disposal and how much you’ll need to get there.
Companies that are growing need more working capital than stable businesses because they’re spending more money before they’re able to bring in revenue from the new venture.
It can take time for a newly released product line or marketing campaign to bring in sales — and even longer before those sales translate into profit that can be used for daily operations.
Meeting Suppliers’ Payment Terms
It is vital to maintain healthy working capital for your business. Maintaining a working capital helps you in meeting your suppliers’ payment terms.
The suppliers provide their products to you on a credit basis. They expect payments from you within a particular time frame, known as suppliers’ payment terms.
There are many ways of meeting suppliers’ payment terms, but it depends on your working capital position and how well it is managed.
Maintaining a healthy working capital cycle will help you meet your suppliers’ payment terms.
Boosting Team Capacity
Working capital is the money left over from the current assets after deducting the current liabilities. When you have an excellent working capital, you have enough funds to pay for the operating expenses such as salaries, bills, and other costs.
When it comes to hiring new employees for your company, you need to provide them with a comfortable working environment. You need to provide healthy meals and ensure that their workstations are well-maintained. These things will undoubtedly let them stay productive and motivated at all times.
Uninterrupted Business Momentum
You cannot pay your employees, suppliers, or creditors on time without adequate working capital. This can hamper the momentum of your business operations and cause delays in production cycles.
Working capital helps you keep things moving smoothly by managing everyday expenses such as payroll, inventory, employee training, etc.
How Can Ecommerce Working Capital be Acquired?
Loans are the most common method used in acquiring eCommerce working capital. This is similar to a mortgage or car loan, except specifically for business purposes. Banks will determine your eligibility based on several factors. These include your credit history, how long you have been in business, and how much money you expect to make from year to year.
The other option for eCommerce working capital is accounts receivable financing, sometimes referred to as factoring, to distinguish it from traditional loans. In this arrangement, you sell the money owed to you by your customers (accounts receivable) for a reduced amount to a company specializing in purchasing such assets.
Steps to Aquire Working Capital Leads
Effective marketing can be the difference between startup success and failure. A good marketing strategy targets your potential customers and increases the chances of making a sale.
There are many ways to start a marketing campaign. Some are generic and can be used for any business, but others are specific to the niche of what you’re promoting. It all depends on the product, target market, and how you want to find your leads.
The first step in the process of business working capital leads is collecting and verifying all the data. This part of the process is significant for every new business owner. The financial history or a company’s credit history is required for this purpose.
Verification can be done with the help of a script that should include questions such as:
- Current Sales Volume
- Monthly Working Capital Needed
- Credit Score
The first step in acquiring quality working capital leads is simple: start at the beginning. More specifically, begin where your prospects are starting: online. That means having a high-quality website that is easily navigated and full of helpful information about your company and its products and services.
Your site should also have forms available for visitors to receive more information about working capital loans directly from you. This approach will allow visitors to feel more comfortable because they can go at their own pace when browsing your site.
Every step in the lead generation process is crucial to its success. It all starts with landing page development. The first step is defining your target audience. If you don’t know who you want to sell to, that’s a problem. Nobody can buy your product if they aren’t interested.
Before you start taking action on marketing your brand, take a look at the competition.
Now that you have defined your target audience and looked at everyone else is doing, it’s time to start doing something and figure out how to promote yourself.
How to Calculate Ecommerce Working Capital?
Working capital is calculated to determine a company’s ability to meet its short-term obligations. The current assets to current liabilities ratio measure liquidity or solvency.
If the ratio is 1:1 or less, the company will have trouble meeting its short-term debt requirements. A proportion of 2:1 or greater implies that the company has sufficient resources to cover its short-term debt obligations.