Cash flow for eCommerce: Tips to stay always positive on your cash flow

cash flow for ecommerce

Cash flow for eCommerce: Tips to stay always positive on your cash flow

Ecommerce isn’t just about making sales and shipping products. Like any business, you need to manage the money behind the scenes — or else your online shop might have to close its virtual doors.

Cash flow management is key to your business success.

Because eCommerce can be unpredictable (sporadic sales, issues with supply or delivery), the financial health of your business fluctuates! And some of those fluctuations are predictable, based on the season.

Meanwhile you have overhead expenses to run your business: website, internet, and employee payroll.

So how do you align all the money coming in and going out, to make sure you always have enough cash to keep moving forward?

The cash flow for eCommerce management is one of the foundations of financial reporting. At the most basic level, cash flow is:

Money in less Money out = Cash on hand

Of course, your business has other money (or value) tied up in assets: inventory, equipment, and other tangible property. But cash flow is concerned with how much value is free to move, or liquid.

Positive cash flow means you have more money coming in; negative cash flow means you have more money going out.

How to manage cash flow for eCommerce: know where you always stand

1. Always have your bookkeeping updated on a weekly or monthly basis. This sets you up for the most accurate accounting so your cash flow calculations will be accurate.

2. Put safeguarding on your profit margins in your calculations. When calculating cash flow and reserves, you don’t want to trim all the fat. Prepare for a bad day, month, quarter.

3. Automate regular payments, coming in and going out. We’re talking invoices, bills, expenses, receipts — all the regular payments your business makes or receives can (and should) be automated.

Not only does this give you peace of mind to know money is moving in the right direction at the right time, automatic receipts and automated expenses help with online bookkeeping for you, your suppliers, and your customers.

4. Do what you can to make sure customers pay on time! Require customers to pay when the product is shipped.

5. Use balance reports or cash flow projectionsFinancial reporting is a must for your business, and visuals are a huge help. Use an accounting software that tracks your sales and expenses, then produces balance sheets and other reports about your finances. You can view historical patterns, identify weak seasons or products, and make smarter decisions about what’s next.

How to improve cash flow for eCommerce

1. Shorten the amount of time between a business expense and getting paid.

This is the goal of healthy cash flow for any business. But we’ll split the answer between physical and digital products.

For physical products, this means getting inventory off the shelves soon after they arrive. If you overstock an item and nobody’s buying it, then you’re losing money in two ways: lack of sales and payments to store those unsold items. Be smart about big orders!

A similar problem can crop up with digital products. If you make a big investment in advertising or in product development and it takes a while to make a sale off that investment, you could run into a problem.

2. Organize expenses at a time that works with your revenue patterns. Do you get more customer payments at the beginning, middle or end of the month? Line up your biggest expenses to be parallel with your highest inflow to make sure you don’t dip into the red.

Another tip: Some suppliers expect a payment within 60 or 90 days. There’s no shame in waiting to transfer that payment! If you have a pretty good relationship with certain suppliers, negotiate with them if you need extra time to pay.

3. With marketing and social media, stay quick on your feet! The best ways to reach your potential customers could change. Maybe your target audience isn’t on Facebook anymore; maybe they’ve moved to the next new platform. This is all about staying relevant and staying effective. What channels are best, what tactics are best, which products are most popular at this moment?

Scale back on tactics or leave channels that simply aren’t showing the Return on Investment. Don’t cut back simply to save money, though; marketing is a necessary investment! Only cut back on activities that are not worth the money you’re putting into them.

4. Run promotions to boost cash flow in the short term. This isn’t news to you and cut costs where you can. You could do a classic sale on physical products. For digital products, this could be discounts on brand-new signups: give half off the first three months or waive a registration fee. 

5. Increase your AOV (Average Order Value). For example, if your average customer spends $75, figure out ways to bump that up to $100. For physical products, a simple tactic could be offering free shipping for orders above a certain amount. For digital products, try to upgrade existing customers to more premium plans.

Interested in saving for your child’s future?


Interested in saving for your child’s future?

How does a RESP work?

Registered Education Savings Plans (RESPs) can help you build an education fund for your child or grandchild (or a relative’s or friend’s child) by allowing you to earn investment income in a tax-deferred environment. You can set up an individual plan with organizations such as life insurance companies, mutual fund companies, and financial institutions, or you can enroll in a group plan offered by a non-profit scholarship or education trust foundation. If the child goes to college or university, the RESP provides funds to help cover the child’s expenses.

Contributions to a RESP are not tax-deductible to the contributor. However, the income in the plan grows tax-free, so RESPs enjoy the effect of tax-free compounding of investment income. When the child withdraws the funds, the income portion will be taxable to the child. As a student, the beneficiary will probably not have much other income and will be eligible for the tuition tax credit, so he or she will likely pay little or no tax.

How much can you contribute to a RESP?

The overall lifetime limit for RESPs contributions is $50,000 per beneficiary. Overcontributions are taxed at a rate of 1% for each month that they remain in the plan.

If you wish, you can withdraw your own contributions to RESP without any tax consequences since you did not get a tax deduction when you contributed the funds. However, you cannot withdraw the income earned by the RESP tax-free. You may also be required to repay some or all any Canada Education Savings Grants upon RESP withdrawal for non-education purposes.

Canada Education Savings Grant

Under the Canada Education Savings Grant (CESG) program, the federal government will provide a direct grant to a RESP of 20% of the first $2,500 of annual contributions made to the RESP. The grant will be worth up to $500 per year for each year the beneficiary is under 18, to a maximum of $7,200 per beneficiary. The grant amount will not be included in the annual and lifetime contribution limits for the beneficiary.

If the maximum contribution is not made in a year, entitlement to the grant can be carried forward to a later year (within restrictions). The total CESG per beneficiary per year is capped at $1,000 or 20% of the unused CESG room, whichever is less.

Example: Michael contributes $1,000 in 2019 to a RESP for his newborn son. This contribution earns a CESG of $200 (20% of $1,000), leaving $1,500 in CESG contribution room available for carry forward in future years.

In 2020, Michael contributes $4,500 to the plan. In this year, contribution for the CESG is limited to the $2,500 of new contribution room arising in the year, plus the $1,500 carried forward. Therefore, the CESG is only 20% of $4,000 or $800. The extra $500 of contribution can not be carried forward and claimed in later years.

CESG contribution room accumulates at the rate of $2,500 per year ($2,000 per year for 1998 to 2006), whether the child is currently a RESP beneficiary. So even if you do not start making CESG-eligible RESP contributions in your child’s first year, you can make catch-up payments eligible for the grant in later years (subject to the lifetime limit of $7,200 per beneficiary and the annual limit per beneficiary of $1,000 or 20% of the unused CESG room).

To qualify for the CESG, the RESP beneficiary must be a resident of Canada under age 18 and must have a Social Insurance Number (SIN) (see 4.8). You can apply for a SIN for your child by contacting Service Canada. Bear in mind that SIN processing may take several weeks.

If your child chooses not to pursue post-secondary education, you will have to repay the CESG funds received but you will only have to pay back the principal amount of the grant. You do not have to pay back the income earned on the grant funds; however, the income will be taxed when it is withdrawn from the RESP.

Payments from a RESP

Your RESP can begin making educational assistance payments to the plan’s beneficiary once he or she enrolls as a full-time student in a qualifying educational program at a qualifying post-secondary institution. Part-time students aged 16 and over are eligible to receive up to $2,500 of educational assistance payments for each 13-week semester. Students with disabilities can also receive educational assistance payments for part-time study.

Payments from the plan can be used to cover the student’s living expenses and educational expenses such as tuition fees and books, although certain plans may restrict which expenses payments can cover.

For an educational program to qualify, generally it must be at least three weeks long, require at least 10 hours per week of instruction (or 12 hours per month for part-time students) and be at a designated educational institution. Correspondence courses and other distance education courses may also qualify, as well as universities outside Canada if the student is enrolled in a course of at least 13 weeks leading to a degree.