Managing a failing business comes with plenty of challenges for those in charge, but so too does managing a successful one.

Ensuring that growth is sustainable once orders start flooding in is the most valuable skill directors and managers can have – and one that shouldn't be overlooked. For business leaders to identify who they should be putting in these important positions, they must understand the challenges of overtrading in eCommerce, and how to properly manage them. 

What does overtrading mean in eCommerce?

In simple terms, overtrading occurs when businesses accept more work than they can fulfil within the constraints of time and quality promised.

If the number of orders accepted (the customer has placed the order and payment has been transferred) is disproportionate to the resources required to fulfil and deliver (such as cash, labour, or stock), then the business finds itself in the tricky position of over-promising and under-delivering.

The consequence of overtrading can lead to poor customer satisfaction and cash flow issues, creating reputational damage that can take a long time for the business to recover from. 

eCommerce startups, small businesses and ones that experience rapid, unexpected growth are more at risk of overtrading. Compared to large, established brands, they may lack the sophisticated forecasting tools to predict these occurrences, as well as the cash assets to weather the storm once they are in it. 

Big corporations often have bigger budgets, teams devoted to risk management and the flexibility to adapt in the face of issues. For example, by extending lines of credit with suppliers or sourcing alternative stock from a diverse supplier base.   

So, how can a fledgling business avoid overtrading challenges? 

Capacity for supply

Supply chain disruption and insufficient labour or materials all affect a company's ability to meet customer demand. Shortages lead to delays and often cost increases, which the company may have to absorb. This may result in cash flow challenges later down the line, compounding the problem.

Fostering strong relationships with suppliers, manufacturers, third-party logistics (3PL) providers and carriage networks – and ensuring good communication with relevant stakeholders throughout the contract – will position the business strongly and allow for faster identification of risks.

New businesses should monitor trading patterns closely – and regularly – and consider contingency plans such as order ceilings. When business is booming the last thing anyone wants to do is hit the brake pedal, but instilling order caps for products that are over-performing for prolonged periods may be key to ensuring growth is controlled and sustainable. Plus, adding a level of urgency or scarcity to your range might achieve greater heights of consumer interest and keep orders coming in thick and fast. 

Capacity for fulfilment and delivery 

As an eCommerce business grows, it will no longer be possible (or economical) to store inventory in the spare room, single-handedly pack orders or take them to the post office every day.

To take the company to the next level and allow it to expand with the demand, leaders must rely on 3PL providers such as fulfilment centres and courier networks. The risk, of course, is that these critical steps move out of the owner's control and into the hands of partners – but it will be necessary to create growth and greater numbers of happy customers. 

As with the merchant, these providers also face the risk of overtrading. Resource management can be of critical importance – relying on agency staff to plug gaps between peaks and troughs can cause costs to skyrocket, not to mention the risk of a surge in mistakes, damages or pick and delivery errors as a result of inexperienced temporary workers. 

To succeed, expanding businesses should choose their partnerships carefully, ensuring the right relationships are in place to deal with peak trading periods (nobody wants to cancel Christmas orders!), rapid growth and plateaus. Most fulfilment centres use WMS (warehouse management systems) to monitor pick rates, inbound deliveries, outbound rates and sales forecasts, which can be invaluable to a business taking on new orders by the day. 

Capacity for management 

The primary focus for management looking to avoid overtrading risks is keeping the company books balanced at all times.

Devote time and resources to conducting proper risk analysis into lines of credit, supplier payment terms, invoices and schedule of outgoings (wages, for example). You should also make sure that procedures are developed to tackle situations where suppliers haven't paid on time or where bank transfers take an extra day to fulfil. This insight should make recommendations for budget that can be ring-fenced for contingency purposes, protecting the company's future against inevitable curveballs. 

In the very early days of a startup it may be possible for a small team – or even the business owner – to manage multiple responsibilities, including forecasting sales. However, as their small business expands, owners should be looking to invest in reliable forecasting tools – as well as reputable partnerships – at the earliest opportunity.

Not only will these investments make the business better equipped to handle a growing portfolio and increasing volumes, but leaders will also benefit from the expertise, connections and technologies of established 3PLs. 

Conclusion

When preparing for the future, the most useful quality a business leader can have is flexibility. The ability to adapt, particularly in the ever-changing landscape of online retail, is crucial for businesses to be able to give (and keep giving) customers what they want. This flexibility must be expected from both themselves and the companies they choose to partner with. Working together towards a shared vision is the only way to succeed. 

Here at Stowsafe Fulfilment, we offer industry-leading expertise and bespoke packages to fit the unique needs of every business. With our help, you can free up time to grow and maintain your online business.

Want to know more? Explore our online fulfilment services or get in touch to speak to an expert.