eBay
Managed Payments timing and your cash-flow gap
The most common reason a growing dropshipping business gets into trouble is not margin. It is timing.
The shape of the gap
You pay the supplier when the order arrives. eBay pays you on its own schedule, and that schedule is measured from events that happen later - dispatch, sometimes delivery.
So there is a period during which you have spent money and not yet received any. At steady volume that is a fixed amount of capital permanently tied up. At growing volume it increases every week.
Why growth makes it worse
This is the counter-intuitive part. Doubling your order volume doubles the amount you must fund before the new revenue arrives. A business that is profitable on paper can run out of money precisely because it is growing.
The faster the growth, the larger the hole, which is why sellers hit a wall at the exact moment things are going well.
Holds on newer accounts
New sellers, or sellers with a recent performance problem, can have funds held longer. That is the worst possible timing: the accounts least able to absorb a cash gap get the largest one.
If you are new, plan for a longer gap than the standard schedule suggests, and do not build a purchasing plan that assumes the fastest case.
Working out your number
- Average days from paying a supplier to receiving the payout
- Average daily supplier spend
- Multiply them - that is the working capital the operation requires
- Add a margin for holds, disputes and slow periods
Most sellers have never calculated this and discover it empirically, at the worst moment.
Levers that actually help
- Suppliers who offer terms, even short ones, directly reduce the gap
- Faster dispatch shortens the time to payout
- Fewer disputes means fewer holds
- Products that sell quickly at moderate margin beat slow products at high margin, for cash-flow purposes
That last point is the one sellers resist. In a cash-constrained business, velocity can be worth more than margin percentage.
Growing within your means
If you know your capital requirement per unit of daily volume, you know how fast you can grow without external funding. Growing faster than that is a decision to finance it somehow - which is fine, as long as it is a decision rather than a surprise.