A lot of people seem to be confused whether they should use their own money or wait for the payment gateway funds to be cleared in order to fulfil their orders and buy the products on Aliexpress.
Here’s the short answer:
Get a credit card and use your own money or debt to fulfil the orders on Aliexpress. There’s no reasonable argument to do it differently.
Everyone is scared of debt these days.
It’s been hammered into us that debt is a bad thing.
And I totally agree: Debt is really bad when used for personal consumption. You should never buy a TV or a car or anything else that’s intended for personal use by borrowing money from someone.
However, when debt is used to multiply money, as in the case of business, you should absolutely use debt in your favor.
In the case of drop shipping, it takes about 5-7 days minimum for your funds to be cleared and likely even longer until they’re transferred to your bank account and available for you to use. That being said, you not using debt will significantly delay the whole shipping process.
Long shipping times is already a weakness of the drop shipping model, so don’t make it worse because you’re scared of debt.
It just makes perfect sense to go to Aliexpress and buy the items with your credit card as soon as you’ve captured an order on Shopify. This will ensure there’s no friction or delay regarding the shipping time.
And technically, you’re not even using debt to fulfill the item.
You actually already own the money to buy the item, plus a profit. So you’ve already won. You’re just using two different accounts to speed up the shipping process, but if you look at the total balance of your finances, you aren’t spending any money that you don’t have.
The customer’s money isn’t on your bank account yet, but you already captured the payment which means using your own money to bridge the processing time of the funds is a complete no-brainer.
You get an order on Shopify for $29.99.
Then you immediately go to Aliexpress and buy the item with your own credit card for $8 in the name of the customer, with his or her shipping address. This grants a smooth and fast order fulfillment.
So on your credit card you are now short of $8 dollars.
But in your payment gateway you have $29.99 waiting to be cleared. So in total you didn’t make any debt, you actually made $21.99.
So as soon as your $29.99 is cleared and transferred to your bank, you simply pay back your credit card debt for $8. And now you’re left with a nice surplus of $21.99 that’s sitting in your bank account.
You used temporary credit card debt to make $21.99.
If you can’t see how debt is actually a great thing and beneficial in this scenario, then you are out of your mind. You need to seriously start to draw the line between good debt and bad debt if you want to master financial freedom in your life. And this is definitively good debt.
Even some customers requests a refund every once in a while, you don’t have to panic. First of all, since you’re making so much surplus with every order, you have a safety net in the case of refunds.
A couple refunds per 100 orders is normal and should be calculated into your budget. If it’s an issue, raise your prices to include refunds.
Also, if a customer claims the item didn’t arrive or is broken, you can request a refund for your own payment on Aliexpress. Just like PayPal, Aliexpress has a dispute system that allows you to request a refund and get your money back if something really goes wrong.
So the way I see it there is very low risk involved here.
So what if you start making a shit ton of money?
What if you make $1,000-$2,000 per day?
In that case, try to slowly scale up your business in small steps to avoid jumping from making $100 per day to making $1,000 per day. Slowly scale up your store and make sure your model still works.
Monitor the orders, refunds and profits closely and make sure they aren’t held by customs and make sure the shipped items arrive.
If you use $10,000 worth of debt to fulfil $30,000 worth of orders, and then all those orders are held by customs or something else goes wrong, you might have to refund a large part of the money. And you’ll be left with a pretty big debt that you might have to pay off. I’m not saying this to scare you, but be cautious when you scale up.
Make sure you wait until customers report that their orders arrived and that there were no problems at customs. Make sure you have a feeling for your average refund rate and only then scale up and use larger amounts of debt to fulfill orders using your own money.
All Posts
Website
