What is the difference between profit and cash flow?

Profit is accounting (Revenue - Expenses). Cash Flow is timing (When money enters vs. leaves). You can be profitable on paper but bankrupt in reality if your cash is tied up in inventory.

What is Net 30 payment terms?

Net 30 means the supplier ships you the goods today, but you don't have to pay the invoice for 30 days. This allows you to sell the goods and collect revenue before you have to pay for the inventory.

Should I use a credit card for inventory?

Yes, if you pay it off in full every month. A credit card gives you a 30-45 day 'float' (interest-free loan) which can help bridge the gap between paying suppliers and getting paid by Amazon.

Cash Flow Management for E-commerce: Why Profitable Sellers Go Broke

It is the cruelest paradox in business: The faster you grow, the more likely you are to go bankrupt.

You check your dashboard. It says Net Profit: $15,000. You feel great. Then you check your bank account. It says Balance: $400.

You have rent to pay. You have suppliers demanding payment for the next order. You panic.

This is the "Cash Flow Trap." It kills more Amazon and Shopify businesses than bad products or bad marketing combined. In this guide, we will explain exactly why this happens and give you the tactical tools to fix it.

Profit is Theory. Cash is Reality.

Most beginners confuse "Profit" with "Cash." They are not the same thing.

Profit is an accounting concept. It means (Sales Price - Costs). It happens on paper the moment a sale is made.
Cash Flow is timing. It is the movement of actual dollars in and out of your bank account.

You can be highly profitable but "Cash Poor" (insolvent). This happens when your cash is trapped in things you can't spend: Inventory.

The Silent Killer: The Cash Conversion Cycle (CCC)

The CCC is a metric that measures how long your cash is "locked up" before it comes back to you.

Let's trace the journey of $10,000 in a typical Private Label business:

Day 0 (Cash Out): You pay your supplier a 30% deposit ($3,000) to start manufacturing.
Day 30 (Cash Out): Manufacturing is done. You pay the remaining 70% ($7,000) plus shipping ($1,000). Your bank account is now down $11,000.
Day 60: The goods are on a boat. You have no stock to sell. You are paying for ads and software, but making $0 revenue from this batch.
Day 75: Goods arrive at Amazon FBA. Sales begin.
Day 90: You sell the inventory. Amazon holds the money in your "Account Level Reserve."
Day 104 (Cash In): Amazon finally deposits your payout.

The Result: You were "out of pocket" for 104 days. For over three months, your business was bleeding cash before you saw a single dollar of return.

The "Growth Trap"

Here is where it gets dangerous. Imagine your product is a hit. You sell out in 30 days instead of 60.

Great news, right? Wrong.

To stay in stock, you now need to order double the inventory for the next batch. That means your next supplier bill is $22,000.

But you haven't received the payout from the first batch yet! You need to pay a bigger bill with an empty bank account. This is how successful businesses die. They grow faster than their cash can catch up.

3 Tactics to Fix Your Cash Flow

1. Negotiate "Net Terms" with Suppliers

Most beginners accept the standard "30% Deposit / 70% Before Shipping" terms. This is terrible for cash flow.

Once you have placed 2-3 orders with a supplier, ask for better terms.

The Goal: "30% Deposit / 70% Net 30."
What it means: You pay the deposit to start. The supplier ships the goods. You pay the remaining 70% balance 30 days after the goods arrive.

This shift is massive. It means you can sell the goods and collect the revenue before you have to pay the final bill. You are using your customers' money to fund your inventory.

2. The "Credit Card Float" Strategy

If you can't get Net terms, use a business credit card.

If your credit card billing cycle closes on the 30th, and you charge $10,000 on the 1st, you don't have to pay that bill for about 50 days (30 days of cycle + 20 days grace period).

That is a free 50-day loan. If you sell your inventory fast enough, you can pay off the card with sales revenue and never pay a cent of interest.

Warning: Only do this if you are disciplined. If you miss the payment, the 20%+ interest rate will destroy your margins instantly.

3. Daily Payout Services

Amazon typically pays every 14 days. If you are doing high volume, waiting 2 weeks for $50,000 is painful.

Services like Payability or SellersFunding connect to your Amazon account and give you the cash the next day (for a 1-2% fee).

Is it worth it? If that 1% fee allows you to restock faster and not go out of stock, yes. The cost of "Stockouts" is usually much higher than 1%.

Inventory Management is Cash Management

Every box sitting in a warehouse is a stack of $100 bills that you can't spend.

Overstocking is a cash flow sin. If you order 6 months of inventory "just to be safe," you have locked up your cash for half a year.

Aim for "Just in Time" inventory. Try to hold 30-45 days of stock. This keeps your cash liquid and allows you to pivot if the market changes.

FAQ

How much cash reserve should I have?

A safe rule of thumb is 3 months of fixed expenses (rent, software, salaries) + enough cash to fund one full inventory cycle.

Should I take a loan to buy inventory?

Inventory financing (like Amazon Lending or Shopify Capital) is a great tool if you know your numbers. Ensure your ROI (Return on Investment) is higher than the interest rate. If you borrow at 10% APR to buy stock that generates a 40% ROI, that is good debt.

What if my supplier refuses Net Terms?

Offer a trade. "If you give me Net 30 terms, I can increase my order size by 20% because my cash flow will be better." Suppliers want volume. Show them how helping you helps them.

Conclusion

Do not run your business looking at the "Profit" column in Seller Central. Run it looking at your bank balance.

Create a simple spreadsheet: "Cash Flow Forecast." List your expected payouts vs. your upcoming bills for the next 8 weeks. If you see a week where the balance goes negative, you have time to fix it (delay an order, run a sale to generate cash, or draw on a line of credit).

Don't let success bankrupt you.

Cash Flow Management: Why Profitable Sellers Still Go Broke