- How to calculate your working capital
- You might be facing these challenges when dealing with ecommerce working capital
- The top 4 ways you can effectively manage working capital for your ecommerce business
- Signs it’s time you should look at a loan for working capital for your online business
- Tap into a working capital loan for online sellers today
You track sales, monitor inventory, and analyze customer orders—but how often do you check your working capital? Working capital for ecommerce is an often overlooked metric—and, most importantly, is one of the biggest indicators of your business’s financial health and long-term sustainability.
| “Working capital is what’s left after covering short-term expenses, and it directly impacts your ability to keep operations running smoothly,” Credibly Founder Ryan Rosett noted. “If your working capital is too low, you might struggle to restock inventory, cover shipping costs, or reinvest in marketing. Too high, and you might not be using your money efficiently.” |
In this blog post, we’ll provide an overview of how to calculate your working capital and why it’s important for ecommerce, some issues you might be facing with your working capital, and signs it’s time for additional financing.
How to calculate your working capital
Cash flow can make or break your ecommerce business. You need money on hand to cover daily expenses like inventory, ads, shipping, and payroll—before revenue from sales even hits your account. That’s where working capital comes in.
What is working capital?
Working capital is the cash available to run your business after covering short-term obligations. It’s a quick snapshot of your financial flexibility—do you have enough to handle today’s expenses and invest in tomorrow’s growth?
The formula is simple:
| Cash on hand – Current liabilities = Working capital |
Some calculations factor in inventory and prepaid expenses, but the real question is: How much cash do you have right now to keep things moving?
Why it matters in ecommerce
Unlike brick-and-mortar businesses, ecommerce runs on speed. You need capital to jump on bulk inventory discounts, scale up advertising during peak seasons, and react to sudden supplier costs or shipping delays.
If you don’t have enough working capital, those opportunities slip away—and your competitors move in fast.
| You should aim for this healthy working capital ratio
With the ecommerce industry slated to hit $8.1 trillion globally by 2026 and the business landscape becoming increasingly competitive, your working capital ratio tells you if you have enough cash to cover short-term expenses—and whether you’re in a strong position to grow. So, what’s the magic number? A ratio between 1.5:1 and 2:1 is ideal. That means for every $1 you owe in short-term liabilities, you should have at least $1.50 to $2 in assets. For high-volume sellers, a slightly lower ratio—around 1.25:1—can still work. If your business pulls in $1.25 million and you owe $1 million, that extra $250,000 could be enough to keep operations running smoothly. |
You might be facing these challenges when dealing with ecommerce working capital
Your sales are growing, but if cash isn’t hitting your account fast enough, you’re stuck. Many Amazon and marketplace sellers see revenue surge, yet they may be stuck with slow payout schedules.
The hidden risks of low working capital
Low working capital can create real, immediate problems, such as:
- Inventory shortages: If you can’t replenish fast enough, you might lose sales to competitors. On the flip side, sitting on too much inventory ties up capital that could fuel growth.
- Payroll issues: If employees start leaving, productivity drops, and hiring replacements costs even more. A steady working capital buffer ensures you can pay your team on time.
- Service quality concerns: Slow shipping, stockouts, and lower product quality can drive loyal buyers to competitors. If you want to keep customers returning, you need cash flow that supports consistent, high-quality service.
| Learn more about other financing opportunities: |
The top 4 ways you can effectively manage working capital for your ecommerce business
Here’s how you can keep your ecommerce business working capital flexible, your inventory moving, and your growth on track.
1. Turn inventory faster
66% of businesses are overstocked. Stock sitting in a warehouse isn’t making you money. The faster you sell and restock, the better your cash flow. Keep your inventory lean by:
- Running targeted promotions to move slow-moving products
- Investing in demand forecasting to prevent overstocking
- Negotiating better supplier terms for flexible restocking
2. Speed up cash flow
Cash that’s stuck in pending transactions isn’t helping you grow. Get paid faster and keep more cash on hand by:
- Offering early payment discounts—a small incentive can speed up receivables
- Negotiating longer supplier payment terms—stretching payables from 30 to 90 days keeps cash in your account longer
- Using automated collections tools to cut down late payments and manual follow-ups
Even small tweaks—like improving Days Sales Outstanding (DSO) and Days Payable Outstanding (DPO) by 30 days—can free up millions in working capital for high-revenue ecommerce stores.
3. Optimize your business model
If cash flow is unpredictable, your business model may need a tune-up. Look at what’s slowing things down:
- Are long shipping times delaying cash flow? Consider faster fulfillment options.
- Are you holding onto too much inventory? Test smaller, frequent restocks.
- Are customers paying late? Offer flexible payment solutions that encourage quicker transactions.
The best business models are agile—ready to adapt to demand, supply chain changes, and market fluctuations without leaving you cash-strapped.
4. Cut unnecessary costs
Every dollar spent on non-essential expenses is a dollar that could be fueling growth. Trim the fat by:
- Reducing debt obligations—refinance high-interest liabilities when possible
- Delaying non-critical employee perks—focus spending on revenue-generating activities
- Eliminating wasteful operating expenses—audit your subscriptions, software, and overhead
Get ahead of the problem
Whether you need it to reinvest in ads, secure inventory, or cover operating costs, having enough on hand gives you the freedom to scale without unnecessary roadblocks.
If your current cash flow isn’t keeping up with demand, it’s time to explore funding options built for ecommerce—fast, flexible, and designed to help you grow.
Signs it’s time you should look at a loan for working capital for your online business
Timing is everything when it comes to securing extra capital. The best move? Borrow before you’re in a bind—when you have a clear plan and a short-term need, not when you’re scrambling for cash.
1. Stock up for peak season
The holidays, back-to-school, or Prime Day—big sales events mean big inventory needs. Running out of stock when demand spikes? That’s lost revenue you won’t get back.
2. Get on bulk discounts
Suppliers often offer steep discounts for larger orders, allowing you to reduce your per-unit costs and maximize profit margins.
3. Launch new products
Expanding your lineup? Whether it’s R&D, prototypes, or your first big shipment, you need upfront cash before new products start generating revenue.
4. Cover fulfillment costs
Rising shipping rates and supplier costs can eat into cash flow before customer payments come in. A working capital loan helps bridge that gap.
5. Recover from a slow sales period
Every business hits slow months. If you’re bouncing back from a dip, a short-term funding boost can help keep operations steady until sales pick up again.
You know it’s the right move when:
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Recognizing the right time to secure working capital is key, but finding a fast, flexible funding solution is just as important. If your ecommerce growth is being held back by cash flow gaps, it’s time to explore a working capital loan designed specifically for online sellers.
