E-commerce enterprises encounter cash flows desynchronization mainly due to a seasonal factor. For the enterprises with traditional sales pattern, the issue of falling sales during the low season can be solved by expecting of planned revenues that are to cover a short-term indebtedness. A seasonal shortage of cash receipts may completely paralyze the activity of e-commerce companies and even lead them to a crisis. The reason for this is the very specific activity of e-commerce enterprises.
Unlike traditional businesses, e-commerce companies perform capital investments almost every day. These investments include website maintenance costs that are associated with retaining leading positions in search engines lists. If these investments are not made on time, the company will not receive a sufficient inflow of customers. Consequently, it will not have enough input cash flow to finance its business activity.
The company’s solvency cannot be evaluated only considering the opportunity to repay debts on a given reporting date. An enterprise should possess sufficient funds all year long to be able to perform regular capital investments. The inability to finance both advertising campaigns and the placement of links on the external sites, as well as the lack of regular investment, may cause a financial crisis within a company.
However, the lack of demand for products is not the only reason that may cause the crisis in e-commerce. Illiterate management policy may also result in negative consequences in the event of a growing demand for products. In case of excess demand it is extremely important to provide a sufficient quantity of goods, since in case of the goods deficit the customer refuses to purchase in a given online store and chooses a competing one. Equally important is the possibility of a technical support when the site attendance grows rapidly. Insufficient technical power may cause the website malfunctioning which also leads to irreparable losses during a period of high demand.
Monthly approach is the best way to perform an anti-crisis analysis of the synchrony of e-commerce companies’ cash flows. To study the synchrony of cash flows the method of standard deviation and coefficient of variation are used [1, p.231-233].
The standard deviation of cash flows is the most common indicator during the uniformity evaluation, since it shows the degree of cash flows deviation from their average level. The formulas for calculating the standard deviation of input (SDICF) and output (SDOCF) cash flows are as follows:
The coefficient of cash flows variation allows determine the level of fluctuations of cash flow volumes. The formulas for calculating input cash flows variations (CVICF) and output cash flows variations (CVOCF) are as follows:
ICFi – input cash flows (over a given period);
ICFа – input cash flows (average);
OCFi – output cash flows (over a given period);
OCFа – output cash flows (average);
F – frequency (period).
It’s worth noting it is normal when the cash flow volumes fluctuate within a corridor of 10-20% throughout a year. Such situation does not indicate the possibility of crisis emerging.
In order to predict the period of the demand growth or decline, it is necessary to analyze the synchrony of cash flows during the previous reporting periods and determine the general trend of cash flow dynamics on the yearly basis. If the analysis shows a possibility of the demand growth, it is important to pay a close attention to the following matters:
1) provide a sufficient number of servicing staff;
2) check the technical equipment of the website which has to deal with a large inflow of customers and not cease working;
3) prepare sufficient quantity of products and form assortment according to the market needs.
To synchronize a cash flow characterized by a declining trend, it’s necessary to make the following steps:
1) diversify the assortment if the goods enjoy the seasonal demand. It is necessary to predict the stocks of goods, the demand for which has a potential to align the incoming cash flows of the company during the decline of the demand for basic products.
2) introduce gift certificates representing one of the marketing instruments that motivates customers to make purchases at the right time. If the possibility of a demand drop is established, it is necessary to introduce gift certificates of a certain amount which prompts customers to buy a product at a particular time.
3) introduce SMS-informing. A cautious reminder by means of text messages always enjoys a good customer feedback. Permanent customers should be informed about the availability of seasonal discounts or favorable price offers which will motivate them to make purchases.
4) develop new products. This is a way of the assortment diversification which attracts customers’ attention to the website during the period of declining demand for the main product.
The established mechanism of preventing the negative effects of cash flow desynchronization allows identify quickly the problem of cash flow insufficiency and introduce a set of effective practical measures, thus enabling a company to cope with the seasonal factor which has a negative impact on the financial activity of the enterprise. Blocking negative consequences in a timely manner positively influences the effectiveness of cash flow management at ecommerce companies.
- Blank I.O. (2007). Cash Flows Management. Kyiv: Nika-Tsentr. (In Rus).
- Demenina O. (2004). Cash Flows management within the concept of financial equilibrium of the enterprise. Actual problems of economy (Aktualni problemy ekonomiky).7.14-18 (In Ukr.)
- Keranchuk L.S. (2010). Methods of optimization of cassh flows of enterprises. Vinnytsia: Trading&Economical Institute of Vinnytsia. (In Ukr.)
- Kramarenko G.O. (2009). Financial Management. Kyiv: Tsentr Uchbovoji Literatury.
- Vejkruta L.(2008). Analysis of the uniformity, synchrony and balance of cash flows of the enterprise. Bulletin of Lviv University (Visnyk Lvivskogo Universytety). 40 . 65-69. (In Ukr.)