Retail Dogma

Retail & Ecommerce Cash Flow Management

We discussed before in our article on retail Free Cash Flow that net profit does not necessarily translate into cash, and that many business owners make this false assumption and start extracting more money out of the business than it is possible. This puts the business into a bad position and hinders its ability to operate or grow.

In this article we will explain what cash flow management looks like in retail & ecommerce and mention some tactics that I have personally used to improve cash flow at my business.


Retail Cash Flow Management

Managing cash flow for a retail or e-commerce business is simply making sure that the cash position of the business is in check and sufficient enough to pay monthly expenses, make payroll, pay suppliers on time,..etc.

It is normal that some months can have a negative cash inflow, but if the business had enough balance on hand it will have no issues.


This month might be a low month for your business. You expect to get 20,000$ in cash receipts and your cash payments due this month are 25,000$. Since you already had a reserve of 7000 $ in cash at the beginning of the month, you will still be positive (2000$) this month, despite negative flow from receipts – payments.

The next month you had the same situation, but now you only have 2000$ cash on hand. However, you managed to get a line of credit or a loan for 10,000$, so you don’t have a problem paying all your bills this month and you know that next month is high season and cash will be flowing again.

This was, in a nutshell, what retail cash flow management is all about. Simply, making sure that every month you can manage to have enough cash to cover all due payments. This cash can be from the business receipts or can be sourced through loans or cash injection by business owners.

You can start by creating a cash flow spreadsheet like the one below or download it from our members area if you are a member.

Retail & Ecommerce Cash Flow Spreadsheet

Retail & Ecommerce Cash Flow Spreadsheet

You will fill this spreadsheet with your revenue and expenses data for the coming months based on your budget/projections. Then you can go back and edit it with actual data as the months roll in.

You will also be able to put the payment to suppliers based on your OTB plan in advance, so you know that at the time of ordering you will have enough cash on hand.

Cash Position

Your goal is to make sure that the “Month Ending Cash Position” is always positive, even if the “Net Cash Change” for that month is negative.

Since you are doing this planning exercise in advance, you will have enough time to rectify if the cash position will be negative by that time. This can be in the form of arranging a loan/line of credit or by applying some of the tactics we mention below to improve your cash flow.

How to Improve Cash Flow For a Retail or Ecommerce Business?

1. Increase Inventory Turnover

Since inventory is my biggest asset and the fastest thing I can transform into cash I started by focusing on it to improve my cash position.

I usually stick to a 6-months forward stock cover while planning my buying budget. This translates into an inventory turnover of 2, i.e in 1 year I will turn my inventory 2 times.

To improve my cash flow, I started working on increasing my inventory turnover, by reducing my stock holding to 4-5 months cover in the new buying plan, while having more bundle offers in the store to push out more quantities until I reach this goal.


2. Negotiate Payment Terms

I started looking at the payment terms I have with all my suppliers, and for any new supplier I was onboarding, I made sure to negotiate a more favorable payment terms. Instead of paying in advance or at delivery I started asking for 30-60 days payment terms.

This way, I get to receive the goods and start selling them before their payment is due.

Read Also: Types of Payment Terms

3. Change Shipping Terms

For some NOOS orders that I needed urgently for replenishment I was ordering them last minute and shipping them by air. Since NOOS was not included in my OTB planning, I didn’t really bother to plan for it in advance.

Now I started to plan my NOOS in advance and had my inventory controller create a system to track stock levels and alert us to buy based on their order lead time but adding to it the additional time for sea shipping.

Basically, instead of ordering last minute and pay premium for fast shipping, I started ordering well in advance and allow for time to ship cheaply but slowly.

This saved us 1000s in shipping fees and of course improved our cash flow.

Read Also: Types of Shipping Terms

4. Change Buying Strategy

Analyzing your inventory on a regular basis and paying attention to the different inventory metrics, such as inventory turnover ratio and GMROI will allow you to make calculated changes to your buying strategy, so as to improve the return you are getting from the inventory you carry.

When you do that, you will start eliminating some styles and options and focus on other options that turn faster and don’t trap cash in them by taking more time to get sold.


This will automatically improve your cash flow, as the biggest reserve of your cash is your inventory.

Read more on Inventory Management

5. Master The OTB Process

A lot of cash can be reserved if the business buys just the right amount of inventory it needs. Too much inventory means trapped cash and loss in margins in the future. Too low inventory level means loss of revenue (and cash) due to missing sales opportunities.

Another reason that buying greatly affects cash flow is that payments to suppliers (cost of goods sold) are one of the biggest cash obligations every month, so you need to be prepared for it or your inventory cycle can be disrupted.


It is advised to create your OTB plan and update it on a regular basis, then link it to your cash flow tracker to project payment to suppliers, as paying for inventory is probably the biggest cash requirement every month. You will find both templates in our members Area.

Learn everything you need to know about OTB from our free Open to Buy guide

6. Explore Clearance Pop-Up Events

To generate cash quickly I headed out of the stores and created clearance events for my oldest stock, instead of waiting for the End of Season Sale and sell it in the stores.

These events were 3-5 days, where we set a pop-up location, together with other brands, and drive traffic to it by local advertising in the area. Items are cleared at very low prices, with the main goal of generating cash, rather than making any profits out of the event. I just make sure to cover the costs (rent, staff, ads, transportation) of the event and that’s it.

At some point we even went to an abandoned mall and rented it very cheap from the owners and set up the clearance event there.

This is a very efficient way to generate cash fast if you need it right now.

7. Always Plan Ahead

As we have seen here, anything can be fixed if known well enough in advance. When you get behind your numbers and plan them well in advance, you will have more than enough time to make a change here and there without getting yourself into a bad situation that can endanger your entire business venture.

A lot of retail businesses fail due to poor financial or inventory planning, and you are not going to be one of them.

At Retail Dogma, we always stress on the power of planning and how this can take you from a mediocre business to a professionally managed business that is able to compete in the market using its owner’s strong business & financial acumen.


Positive Retail Cash Flow

You might ask: What if I actually have a consistently high level of cash flow?

If you are one of those unicorns, like Apple, congratulations! You are a super star.

Having more than enough cash would mean a lot of things. You can start using this cash to expand your business into new locations. You can use it to acquire/invest in other related businesses and create synergies that make you even more profitable. You can create an online front for your brick-and-mortar business and reach more customers.

Read more: Moving your brick & mortar business online (Step-by-step)

Finally, you can also take out this cash for yourself as an owner and use it for personal investing or in diversifying your business portfolio.

Bottom Line

It is essential for any retail business owner to be able to manage his cash flow effectively, in order to meet his business cash needs month in & month out.

This can easily be achieved with proper tracking of the monthly cash position and by taking actions to correct the cash situation at any given time.

Read more articles on Retail Financials