eCommerce Finds The Cash Flow Link Between Financing And Shipping

For eCommerce businesses, income and expenses are closely linked. After all, you have to spend money to make money, and for sellers, the costs of logistics and shipping are a necessary expense in order to make a profit when sending their goods out.

But for many of these businesses, which are often SMBs or operate as seasonal companies, working capital is tight and uneven, says Pitney Bowes VP Global Financial Services Chris Johnson.

Pitney Bowes provides logistics, shipping and financial services for eCommerce industries, many of which overlap with each other. And with new features under its financial services offerings recently launched, the company is moving closer to its corporate customers’ books by offering working capital and lending solutions like flexible payments.

According to Johnson, because Pitney Bowes is one of a handful of industrial loan companies in the U.S., it can support enhanced cash flow management for the eCommerce businesses with which it works. Johnson explained to PYMNTS why the financial services it offers are critical for companies in which shipping and logistics is a major source of spend.

“Especially around shipping and logistics, in this industry, customers are in need of working capital improvements so they can run their businesses more efficiently,” he said. “They need to maximize their cash flow.”

But for merchants that handle a high volume of shipments, cash flow can be frequently disrupted.

“The majority of the expense in moving a package from point A to point B is going to be incurred at the time that they move that package,” the executive said. “But generally speaking, most of these companies doing the shipping are not going to receive the revenue until much later. You have an expense on day one, or in the first few days, but you’re waiting 30, 40 days to get paid.”

“This creates a terrible working capital inefficiency problem, and it really does hinder our customers’ ability to invest in their core operations,” he added.

For seasonal companies, whose products are in high-demand for only a small portion of the year, this working capital crunch can be even more drastic.

“Seasonal operations businesses have perhaps the highest need for working capital,” said Johnson. “Unfortunately, when you look at a seasonal business, their working capital needs vary dramatically throughout the deal. So there is a surge in cost of fulfillment operations of all of the inventory that they have to bring on-board in order to meet the demand. At the end of the day, a seasonal business is going to have to make an educated guess as to how much product they will fundamentally need.”

Because the cost of shipping and logistics is so tightly entwined with commerce companies’ cash flow, Johnson explained that financing solutions made available to these companies should similarly be tied to the shipping aspect of their clients’ operations.

For instance, because the company is a bank, its business customers can have an account that earns interest in the form of postage credits. The company also facilitates the payment of postage and other shipping costs via ACH or wire transfer, payment rails that Johnson said also support enhanced cash flow management.

“Digital-based payments are becoming increasingly popular,” he said. “They allow you, as a company, to unlock some of the costs imbedded into a typical payables and expense standpoint.”

For example, businesses that cut checks have to incur the cost and manual labor of doing so, while also having to deal with the time it takes for those checks to process and settle. But digital payment rails also support what Johnson described as “digital engagement,” allowing companies to access online tools to schedule payments and handle finances in real-time.

For Pitney Bowes’ financing service, digital processes are also key for both the company and the lender to understand cash positions on any given day.

The cost of logistics and shipping services is on the rise for businesses of all sizes. Some of the world’s largest companies like Amazon have the ability to invest in tools to help reduce costs and maximize efficiencies: As of last year, the company had invested in 40 air cargo planes, for instance.

But for the rest of the market, especially for SMBs, such investments probably aren’t on the books. According to news from the Council of Supply Chain Management Professionals, last-mile shipping can make up more than a quarter of a company’s total supply chain costs, so every dollar counts.

“Today’s business environment is more competitive than ever before,” Johnson said. “You must have exceptional value, and you must have a very strong competitive offering in terms of price.”

Access to flexible payments and working capital solutions, tied closely to logistics and shipping services, is critical to helping eCommerce merchants gain the competitive edge they need in the current market climate, he added.