A potential pitfall for any retailer is the time gap between paying the manufacturer for the merchandise you sell and getting paid for it by the customers you sell it to. When that interval lasts too long, cash on hand becomes all too scarce. Here are four smart strategies for staying out of the hole.
Streamline your inventory.
If you have merchandise that sits on the shelf for more than 30 days, you have too much inventory. That means too much of your money is tied up on those shelves. A couple of streamlining tips:
- Track your sell-through for each SKU, so you know which ones need to be reordered more quickly and which should be discontinued.
- Don’t be tempted by bulk discount offers from your suppliers unless you have proof positive that those items will sell quickly.
Increase customer spending.
When your revenue per customer goes up, so does your available cash. There are many ways to encourage customers to buy more than they originally planned, including:
- PWPs and BOGOs. “Buy this camera and get 20% off a camera bag” or “Buy 1 pair of sneakers, get another pair at 50% off.”
- Upsell and cross-sell suggestions. “This TV has even better resolution than the one you’re looking at” or “Would you like the conditioner to go with the shampoo?”
- Coupons for the next purchase. Include one in the shopping bag or mail/email it to customers who haven’t been in the store for a while.
- Loyalty rewards for repeat customers. Accumulate shopping points to earn a discount.
Strategize your payables.
Shorten that gap between money going out and money coming in by waiting as long as possible to pay your supplier: 60 days, 90 days, or whatever it says in your contract.
Take advantage of early payment discounts. If you don’t know whether your supplier offers them, ask.
Consider an inventory loan.
If you’re short on cash but need to restock inventory, an inventory loan may be easier to get than a standard bank loan. That’s because lenders will look at your sales history, not just your credit score.
Paper profits may look nice, but good cash flow is the real indicator of a successful business. Being able to maintain it will improve your credibility … and your ability to take your business wherever you want it to go.