Ilya Kulyatin is the COO of Nimble Seller – a Singapore-based fintech startup, with a mission to make e-commerce completely capital-free for entrepreneurs running Amazon FBA business.
In this interview, Ilya and Sergey discussed why understanding the cash flow cycle is essential for your Amazon business, and how to use financial leverage to reduce risk, win market share, and grow your Amazon FBA business.
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- The cash flow cycle is the number of days between the moment you pay your supplier, and the moment you get your money back through revenue. This cycle can be quite long, which will freeze your capital. Nimble Seller buys your inventory from the supplier and allows sellers to pay them back later, which shortens the cycle and lets you scale your business with ease.
- There are two problems with the Amazon cash cycle: one – the mismatch between your cash inflows and outflows, and the other – the uncertainty that comes with not knowing when you’ll be needing the cash quickly to replenish your inventory.
- Scaling your business is important because it allows you to capture more market share. Unless you understand your cash flow cycle and per-unit profitability, it’s hard to forecast your cash needs ahead of time.
- Most sellers are afraid of using external sources of financing to grow and leverage their business and rely on reinvesting their profits. It’s tough to grow without external leverage because of the competition. For example, if you have the Chinese competition, it will be tough to compete in the sales volumes. So you need somebody to help you.
When you meet an average Amazon seller, how do you typically introduce yourself? How do you describe yourself and what your business does?
We offer a buy now and pay later solution for Amazon sellers. We buy inventory from your supplier for you, and you pay us later. There are two ways that it helps.
First, you shorten your cash conversion cycle. So, instead of blocking your money for up to six months, your cash conversion cycle – the days between your outlay of capital and when you get your money back from the sales – reduces from up to six months down to two weeks, or even less.
Second, this lets you order more and scale the orders as soon as your sales velocity picks up. We add new orders if we see your sale spiking up. You don’t even need to spend your own money on that inventory while we are employing our capital. You can invest it in marketing, acquiring new customers, business, and product development, and not worry that you’ll run out of stock.
Most Amazon FBA business owners confuse our solution with a business loan. But it’s not a loan, as we don’t charge interest rates and don’t require any personal guarantees. We provide a clear business solution that you put in place, and that grows alongside your Amazon FBA business.
Most of our clients come to us with clear plans to scale their business considerably, and we give them support to reach those goals.
You have an excellent blog post on your website called “Why growing an e-commerce business is a pain and how to deal with it.” For listeners who haven’t read it, could you briefly explain why it’s hard to scale an e-commerce business – on and outside of Amazon?
As I explained, the cash flow cycle is the number of days between when you pay with capital to purchase the product, and the day when you receive that money back through customers purchasing that product. This cycle can be quite long. To replenish your inventory, you need to wait for the money to come back to you because you usually reinvest your own revenues and then demonstrate growth through acquiring more of the market share.
It’s very hard to forecast upfront on how much capital – exactly – you’ll need. And so, we have two problems with the Amazon cash cycle: one – the mismatch between your cash inflows and outflows, and the other – the uncertainty that comes with not knowing when you’ll be needing the cash quickly to replenish your inventory.
We help to solve both of these problems by buying your inventory from your supplier.
You can also reduce those cash flow problems by negotiating with your supplier. When you pay 100% upfront, you’re essentially financing your supplier. Never do that. Try going 50/50. If you source products from China, it’s expected that you negotiate. Although, the industry standard is to pay 30% upfront and the rest – once the product is delivered. The more you work with your supplier, the better terms you’ll be able to get.
Secondly, you can play with the logistic provider’s terms. You don’t have to pay for the vessel upfront; you can extend the terms and pay 5-10 days after to your freight forwarder.
It’s hard to use banks to help you out with loans because you’d have to have a good relationship with the bank and show sales history.
According to Shopify, 80% of e-commerce businesses fail due to poor cash flow management. Why do you think that is, and what are the key problems and pitfalls that sellers should be aware of?
As an Amazon FBA business owner, you know that scaling your business is important. If you can’t scale, you can’t capture market share. Scaling requires buying more inventory, which you don’t always have available cash for. But if you can’t respond to cash flow deficit, you risk to default on your payments, which is a killer for your Amazon FBA business.
From our experience, from what we see, sellers, in general, tend to have a very light understanding of their cash flow needs. Very few are doing sensitivity analysis of changes in production, marketing and operations costs and how they impact their profits. And almost nobody is optimizing cash flow timing. That’s because it’s usually a task for a finance officer, a position smaller e-commerce businesses – and most Amazon FBA businesses are a small business with fewer than five employees – usually don’t have.
Imagine that a seller is done with product development, they have $5,000 on hand and about to place their first order with a supplier. What should their strategy on their first order be, from a cash flow perspective? Should they stock up using all 5K and reinvest profits, or should they leave some for the second order (reorders) and PPC? What should sellers expect in terms of ordering and reordering inventory?
This will heavily depend on how competitive the niche is, what is the sales velocity for the top of Amazon’s page 1 (or whatever position the seller plans the product to be in the near future), and how long the cash conversion cycle is.
If the niche is not very competitive and the cash conversion cycle is very short e.g., a few weeks, not a few months. In this case, the seller can put most of the $5k into the production of the first batch. Otherwise, we’d suggest launching with a half or even a third of that sum.
Obviously, to answer this question, I would think pretty carefully about the profit margin. So tools such as Sellerscale can come up very handy – so that you understand your profit margins, your unit economics and see when your product will pay you back. Then you can be more precise with the submissions of your orders. If your profit margins are quite healthy, you can safely invest most of your 5K and then just get your money for the next batch while you’re selling.
It all depends on your margins and your cash flow cycle: how fast your money will come back to you.
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Logistics is one of the key problems when it comes to building a scalable e-commerce business (high FBA fees, long lead times, expensive air cargo, etc.) What are some of the ways, hacks, and tactics that any Amazon seller can apply to cut down logistics costs?
The first and easiest way is to scale from low container load (LCL) to full container load (FCL), which would have the biggest impact on your unit economics. Plan ahead and don’t use air freight. If you need faster inventory replenishment, you can look at a fast ocean shipment like the one offered by Matson, cutting in half your ocean delivery time.
Second, payment terms. When you start working with a freight forwarder (FF), you get an implicit financing scheme, because you pay for the shipment once it sails and you have 5-10 days to pay the invoice. When you’ve been using this FF for a while and build credibility, you can ask for extended payment terms, which means paying once the shipment is delivered + a certain number of days (for instance, 30).
Third, when requesting for quotes to compare different rates, make sure to understand all of the fees. Most of the FFs are comparable in terms of pricing but are very different in terms of how much of your time they’ll require. For instance, we have a client with her logistics provider quoting $300 cheaper, but they wasted two weeks of our time to try and get them onboarded. $200 on a 30k shipment is not much, but the time value of going with an inefficient FF is huge.
What are the funding options currently available for Amazon FBA sellers? (e.g., bank loans, private lenders and investors)? Which ones are more reliable than others? What challenges might there be for sellers who are looking for financing (e.g., minimum revenue requirements, and other qualifications)?
So when people think about financing, they usually say, “No, I don’t want that. What if I won’t be able to return that money?” That’s obviously very good thinking, especially if your business is not very profitable. But if your business is mature, why not using, extra cash for leverage to speed up your cash conversion cycle and attain more market share?
The way you start is with what you can get easiest. The first thing you need to do is to ask your friend, family, and use your savings. That’s the less risky approach. Then, you can try banks and SBA (Small Business Administration) loans. But again, it’s hard to access them. In certain countries like Singapore, if you’re a startup, you need to do three years of business activity.
You can have alternative lenders, but you have to be careful with those, as the ARRs can add up. This tends to be more of an emergency solution because they tend to be quite expensive.
You can use a merchant cash advance, invoice factoring, and other trade finance products. I would never use credit cards for e-commerce, as it’s very dangerous. But having it in place, just in case, is a good practice.
For the right choice, focus on the following criteria: cost of capital, scalability, cash conversion cycle fit, and diversification. Never put your eggs in one basket.
A good rule of thumb would be to look at your business after six months of sales activity, and then decide what kind of financing options you have – and which work best for you. It’s important to do proper risk management and research beforehand.
What truth do very few people agree with you on? (Peter Thiel Question)
That’s a great question. It’s also a link to what we’ve just discussed. A lot of people in the eCommerce space don’t understand the value of leverage. Most of them think that they can grow, by reinvesting their own revenue. I disagree with that point. It’s very hard to grow without external leverage because of the competition.
For example, if you have a Chinese competition, it will be very hard to compete in the sales volumes. So you need somebody to help you. Like us.
Learn more about Nimble Seller on www.nimbleseller.com
You can also find Nimble Seller and its founders – Ilya Kulyatin and Yev Ivanko on Facebook and LinkedIn.