From Inventory to Income: How Ecommerce Brands Can Optimize Their Cash Conversion Cycle

Key takeaways for ecommerce brands:

• TikTok Shop's new cash flow solution addresses a known challenge in third-party selling: delayed payouts. Providing sellers with immediate funds upon shipping, the solution helps businesses accelerate their cash conversion cycle (CCC).
• CCC) measures the time it takes to sell inventory, collect receivables, and pay bills. Lowering the CCC, ideally achieving a negative value, is essential for quickly converting assets into cash.
• While funding options like TikTok Shop's solution can be helpful, businesses that prioritize efficient financial management would be well advised to leverage real-time financial data for optimizing their CCC and cash flow management. 

When British makeup brand P.Louise broke the record for most revenues on a TikTok Shop livestream with over $2 million in 12 hours, much of the focus was placed on its founder's humble beginnings – and justifiably so.

While working as a makeup artist and cashier at a department store in 2014, Paige Williams got the idea to start a beauty brand. She borrowed £20,000 from her grandmother – a cleaner – and founded P.Louise. Ten years later, Williams is selling more than 250,000 products on TikTok Shop monthly. During the aforementioned livestream, P.Louise sold two products every second and added 29,000 new followers to its 2.9 million fans on the platform.  

Of course, not every ecommerce founder has someone they can borrow from. If you're one of these unlucky founders, the good news is that TikTok Shop has got you covered. The platform recently partnered with Storfund, a UK-based fintech, to provide a fully embedded cash flow solution for its sellers.  

The solution, dubbed “Daily Advance,” addresses a known challenge in third-party selling: waiting for payouts. Marketplaces hold back payouts for up to 60 days to ensure funds are available for potential refunds, but that can prevent sellers from restocking inventory, hurting business profitability. Daily Advance allows sellers to receive funds immediately after goods are shipped, helping them streamline online store inventory management and handle cash flow more efficiently. 

“Unlike traditional financial products, Daily Advance is built for the intensive speed and volume of ecommerce transactions, putting high-growth sellers in control of their working capital,” said Oliver Whelan, chief revenue officer at Storfund. “There’s virtually no limit to what businesses can receive, whether they make sales of $10,000 or $1million in one day, Daily Advance will enable them to maintain their momentum.”

Decoding the Social Commerce Phenomenon

The rise of social commerce – a fusion between social media and ecommerce – as a sales channel has made maintaining brands' momentum on TikTok Shop all the more important. A recent shopper sentiment report by ecommerce customer experience platform AfterShip, drawing on insights from 1,000 American shoppers, revealed that:

• Over half of Americans (52%) have purchased goods on social media.

• 40% of consumers said that they are likely to shop through a social media platform in the future.

• 41% of respondents trust sellers with a social media presence more than ones without one; 30% said a social commerce presence positively impacts their brand trust.

TikTok Shop, launched in September 2023, only accelerated social commerce's adoption in the U.S. According to several recent studies, the platform is flourishing among brands and consumers alike:

• 33% of Americans have purchased an item on TikTok Shop. 

• Gen Z plays a crucial part in TikTok Shop's success in the U.S.; 56% of Gen Ziers have shopped at TikTok Shop in the past year – almost two times more than other generations. 

• 51.9% of US-based brands sell on TikTok Shop. 

One of these brands is Valley Chase. According to founder Jordan Ellingson, it can take as little as a week to go from ordering products to selling on TikTok Shop, but he typically had to wait another week to get paid. Using Daily Advance, he said, has reduced his cash conversion cycle (CCC)  from 14 days to seven – allowing him to “schedule orders confidently, knowing when funds will arrive.”

Cash Flow Fundamentals: The Numbers That Matter 

CCC is one of the most crucial metrics of cash flow management. A primary indicator of financial health, cash flow refers to the amount of money that goes into and out of a business. Income from sales of goods, services, or assets represents cash inflows. Conversely, money spent on expenses or investments represents cash outflows. When total inflows exceed total outflows, the business has a positive net cash flow – and vice versa.

Managing your cash inflows and outflows starts with creating a cash flow statement. Offering a clear picture of a brand’s operational efficiency and financial stability, ‍cash flow statements include three parts: 

1. Cash flow from operating activities, such as receipts from sales of goods and services,  suppliers and employee payments, rent, taxes, office supplies, etc.

2. Cash flow from investing activities, such as purchases or sales of long-term assets, payments related to mergers and acquisitions (M&A), etc.

3. Cash flow from financing activities, such as capital raised, repayment of loans, dividends paid to shareholders, etc. 

The first part of the cash flow statement focuses on liquidity, i.e., the business's ability to cover operating expenses and pay its debts. This is where your cash conversion cycle comes into play. CCC is critical to your online store inventory management – it shows how much time your business needs to sell its inventory, collect receivables, and pay its bills. The formula is straightforward: 

Days of inventory outstanding (DIO) + Days Sales Outstanding (DSO) – Days Payables Outstanding (DPO) 

*DIO: the time it takes to sell your inventory 

*DSO: the time it takes to collect receivables

*DPO: the time you have before paying your bills

The lower the CCC – a negative one is the holy grail – the better, as it means the business can convert its inventory and receivables into cash quickly. Tracking your CCC requires, first and foremost, accurate and up-to-the-minute financial data. The bonus: based on our experience working with thousands of ecommerce brands, real-time visibility into cash flow can increase working capital by 25-30%. 

And this brings us full circle to TikTok Shop's ecommerce funding solution. While quick payouts can sound tempting, fast capital often comes with additional costs, potentially impacting their business profitability. Optimizing your CCC with real-time financial data can help you maintain a healthier cash reserve and reduce reliance on external ecommerce funding – which is, in most cases, a more realistic path to entrepreneurial success than borrowing money from your grandmother.

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