Last Updated on August 21, 2026 by Ewen Finser
Your business might be profitable on paper, but if you don’t have enough cash on hand to pay your suppliers, you’re going to wind up in a tight spot.
There are healthy cash management practices that every business can follow to keep a strong cash flow, like strategically utilizing credit or speeding up payment collection. But e-commerce merchants face unique cash flow challenges that you’ll have to deal with.
If you’re already in a hard position, here are some steps you can take to turn things around.
Implement Cash Flow Forecasting
You should always be tracking your inflows and outflows — it’s not a good idea to put it off until there’s an issue, because at that point, it may already be too late. You don’t want to forecast too far out to where things get hazy, but it’s wise to forecast for both the near-term and the long-term.
- 13-week forecasting: A 13-week cash flow forecast is the most common approach for the near-term. This is approximately the length of one fiscal quarter, which makes it an ideal timeframe for a lot of businesses because it aligns with their financial reporting. You can also implement a rolling cash flow forecast to ensure you’re staying up to date.
- 12-month forecasting: It’s smart to forecast further out to align with your annual budget, keeping in mind factors that will affect your inflows or outflows. For example, a lot of businesses don’t consider the impact of taxes. You should also think about seasonality, such as if your sales are concentrated around Christmastime or during the summer.
Once you’ve created a cash flow forecast, you can pinpoint potential problem areas and take appropriate action.
Use Just-In-Time Inventory Management
Where a lot of e-commerce merchants run into issues is with inventory management. If you have too much in stock, you might not make enough through sales to cover the cost of it. If you have too little, you may run into shipping delays or other issues that cause you to lose business.
For those in the “too much stock” camp (which is the issue for many e-commerce sellers), using just-in-time inventory management can help resolve this issue. Basically, you only purchase inventory when it’s needed, rather than keeping a large backlog around that will last you months. Of course, if there’s a huge spike in customer demand, it can be hard to keep up. That’s why it’s important to forecast customer demand in conjunction with this approach.
Switch to Dropshipping or 3PL
Another approach to inventory management is to outsource it rather than managing it in-house. Dropshipping has grown in popularity because it reduces the workload on your end — your supplier fulfills customer orders on your behalf as they’re received, shipping them out without you ever having to have inventory in stock.
For cash flow purposes, that last part is what matters. With traditional inventory, you pay for stock weeks or months before you sell it, so your cash sits on a shelf until a customer comes along. With dropshipping, the order comes first and the payment to your supplier comes after, which means you’re never funding inventory out of your own reserves. That flips your cash conversion cycle in your favor and frees up working capital for things like ad spend.
The caveat is that you have less control over the customer experience, and margins are often smaller. But that’s a profitability tradeoff, not a cash flow one. A lower-margin sale that requires no upfront cash can still be the better choice if cash is what’s constraining you right now.
Consider Your Financing Options
Financing can be tricky because while it can help fill cash flow gaps, your business can end up in serious debt if you rely on it too much. However, if you’re mindful of how much debt you’re taking on and are committed to paying it off on time, it can give your business some breathing room when your cash reserves aren’t enough to cover your expenses.
Credit cards can be a good short-term solution because you can access float. As an added bonus, you can use the points or cashback rewards you earn to offset other business expenses. It’s generally a good idea to use credit cards for ad spend, for example, and even if the advertiser doesn’t accept cards directly, there are third-party tools that let you use your card while delivering funds to the vendor via their preferred method.
If you need more financing beyond credit cards, you may want to apply for a business loan or line of credit. However, like credit cards, it’s important to consider your options and your ability to repay what you’re borrowing.
Optimizing Payment Terms
Net 30 is the most common payment term you’ll see on invoices from suppliers. However, if you’re struggling with cash flow or need additional flexibility in this area, you might want to see if your suppliers will work with you on changing their payment terms. You could potentially extend it to net 60 or even net 90. It’s up to the supplier if they’re willing to compromise on this, but if you’ve been a loyal customer for a long time, the odds go up quite a bit.
On the flip side, you can negotiate with your customers to get shorter terms for AR. If some of your customers are on net 60, maybe you could bring them down to net 30, which would get the cash in your hands faster. Offering early payment discounts or late payment fees are other ways to incentivize customers to pay you in a time-efficient manner. Beyond this, some steps you can take are promptly sending out invoices and setting up automated payment reminders.
Reduce Chargebacks
When a customer challenges a transaction on their bank or credit card statement and wins, you end up losing the money from that sale — and often also the item itself. Plus, there can be additional fees involved in fighting the chargeback.
The more serious problem is if your chargeback rate gets too high, in which case your payment processor might stop working with you since you’d be considered “high-risk.” The acceptable percentage varies depending on the processor, but you could face issues once you start creeping toward 1%.
To prevent losses from chargebacks, it’s a good idea to invest in advanced fraud protection software. Many processors already have built-in fraud tools, but you may want to add another third-party solution for another layer of protection. In the event that chargebacks do occur, you want to be prepared to win them. Clearly outline your policies and product descriptions on your site, and maintain all relevant documentation, such as shipment tracking information.
Reduce Returns
Returns are similarly problematic; while you do get the item back, there’s the obvious cash outflow. Plus, there are other costs involved in shipping and restocking. And if customers frequently have to return items, it could harm your brand image and result in fewer sales overall.
To reduce returns at your business, take a look at your online store’s product descriptions and modify them if they are inaccurate or insufficiently detailed. Also ensure you have clear and accurate product images. If you’re in the clothing business, you could introduce a virtual try-on feature. Otherwise, you could allow customers to see what the item would look like in their homes.
However, to take targeted action, you’ll want to analyze your returns data to see if there are any patterns in the reasons given.
Choose a Processor with Faster Payouts
The payment processor you choose also has an impact on cash flow. Some processors will make you wait several days after a sale before the funds hit your bank account, which can create issues when you need to pay your bills.
However, many processors offer fast funding options, though some of them come with additional fees:
- Stripe: Stripe Instant Payouts can deliver funds to your bank account within 30 minutes at any time.
- Square: Square supports next-business-day, same-day, and instant transfers.
- Finix: With Finix, you can choose from next-day ACH, same-day ACH, or instant payouts.
- Luqra: Luqra offers accelerated funding times, such as same-day and next-day.
- Elavon: Elavon’s fast payment options include Fast Track Funding (one business day), True Daily Funding (within hours), and On Demand Funding (within minutes).
Something that many e-commerce founders overlook is the fact that it’s possible to have more than one payment processor up and running at a time. While this can be costly and is overkill for most, there are some situations where it makes sense.
The first is if you want to sell to customers in markets that your primary processor doesn’t support. In this case, you have no choice but to add another.
But even if you’re not expanding into new territories, some businesses prefer to have two or three processors going in case of unexpected outages or downtime. If you’re relying on only one processor and there are technical issues when customers are trying to check out, you’ll lose those sales.
Additionally, your business’s risk level can help you decide whether you need one or more processors in place. Businesses in high-risk industries might prefer to have backups in case of account holds, freezes, or shutdowns. Without them, there could be serious cash flow issues if your primary processor stops working with you.
Taking Action to Improve E-commerce Cash Flow
If you’re an e-commerce merchant struggling with cash flow, there are several actions you can take to get back on your feet, such as creating a cash flow forecast, changing up your inventory buying practices, negotiating with suppliers, strategically using credit, or even switching to a new payment processor to access lower transaction fees and faster funding times.
No matter the specifics of your business, all merchants can benefit from improved cash management.