Cash flow for online stores: why profitable stores run out of cash and how to calculate working capital

For a marketplace store, money paid to suppliers goes out first, while money from sales comes in later. Stock sits for a few weeks, orders take days to arrive, and the marketplace releases the funds days after delivery. That's why a profitable store can run out of money. A store with R$ 40 mil in monthly cost of goods sold (COGS), 45 days of stock, 11 days until payment, and suppliers paid upfront needs about R$ 75 mil in working capital just to keep operating.

Profit is a question about the month; cash is a question about timing. You need answers to both. Confusing one for the other is the fastest way to rely on early payouts every month.

#Profit and cash are not the same thing

That's why the DRE can show a profit while your bank account is empty. I put together a DRE for a store in Profit and loss statement for a marketplace store.

#The cash cycle: how long is your money tied up?

The cash cycle is the time between paying your supplier and receiving payment from the buyer:

Cash cycle = days of stock + days until payment − supplier payment terms

• Days of stock: How long, on average, a product sits before it's sold.
• Days until payment: Shipping, delivery, and the marketplace's payout period. Mercado Pago's help page says Mercado Livre releases funds 8 days after delivery for new products shipped with Envios; with a few days for delivery, the total is over 10 days. I explain more in when Mercado Livre releases your sales funds.
• Supplier payment terms: How many days you have to pay for your purchase.

#How much working capital do you need?

Working capital ≈ monthly COGS ÷ 30 × cash cycle

The same store, with the same profit, needs R$ 75 mil or R$ 8 mil to operate, depending on its cash cycle. Negotiating payment terms with suppliers and buying more often can improve cash flow more than any increase in sales.

And selling more increases the need for capital: if COGS doubles, working capital needs double too. That’s why fast-growing stores often face a cash crunch at their best moment.

In practice. A swimwear store tripled its sales between September and December. To keep up, it bought stock upfront in August and October. Fourth-quarter profit was the highest of the year, but in November, it didn’t have enough money for payroll because all its cash was tied up in stock and sales awaiting payout. It used early payouts twice, and the fees ate up nearly a quarter of the quarter’s profit. The following year, it negotiated 30-day terms with its main supplier and split its purchases into four smaller orders.

#The weekly cash flow model

For a marketplace store, a weekly spreadsheet is enough. Use one column for each of the next eight weeks:

Cash in

• Expected payouts from Mercado Livre (based on the dates shown in sales)
• Expected payouts from Shopee and other marketplaces
• Other income

Cash out

• Suppliers (based on due dates)
• Tax (DAS or payment forms for your tax regime)
• Ads (credit top-ups, invoices)
• Payroll, owner’s draw, rent, software
• Shipping for purchases and stock replenishment for FULL

Balance

• Starting balance + cash in − cash out = ending balance, which becomes the starting balance for the following week.

The week your balance turns negative is your warning sign. With eight weeks’ notice, you can negotiate payment terms, hold off on a purchase, or plan a one-time early payout instead of finding out at the last minute.

#How to shorten the cycle

1. Buy smaller quantities more often. Fewer days of stock.
2. Negotiate payment terms with your supplier. Every extra day to pay is one less day of capital you need on hand.
3. Confirm delivery for self-shipped orders. On Mercado Livre, without delivery confirmation, payouts can take almost a month.
4. Clear out stock that isn’t selling. Unsold products tie up cash, and with FULL, old stock also incurs fees after the fourth month. See how FULL works.
5. Use early payouts only as an exception, and compare the cost with the sale’s margin.

#Cash flow starts with margin

Cash flow is only reliable if the incoming payments come from profitable sales. A store selling at a loss may improve cash flow in the short term, but make it worse in the long term because it needs more stock to generate the same amount of cash. Milewa doesn’t replace your cash flow spreadsheet, but it answers the question that comes first: how much profit each sale brings in. With the margin on every order and the month’s net profit, your cash flow is based on real numbers.