The advantages of e-commerce are not limited to the convenience experienced by the consumer. E-commerce entrepreneurs enjoy benefits of their own, particularly in the form of increased flexibility.
And while the prospect of financing a successful e-commerce enterprise may seem daunting at first, it is another area in which the business owner can expect a flexible and exciting range of options. In short, obtaining financing is not only easier than you think, but also a practice that people in your position can employ while confidently growing revenue.
A Plethora of Options
Whether an e-commerce entrepreneur is in the earlier stages of business ownership or already a seasoned professional, there is comfort to be found in the sheer number of ways in which inventory can be financed.
These methods can begin at a level as basic as using savings from a day job or borrowing funds from friends and family, all of which can be put toward inventory needs.
Other traditional options include loans from financial institutions — a form of financing to which budding business owners have turned for years. Beyond that, the advantages of the online world really begin to come into play, as a technologically sophisticated business may require an equally sophisticated, 21st-century form of financing.
E-commerce financing options easily encompass the convenience of crowdfunding, which carries the added benefit of demonstrating the public’s belief in the commercial viability of a business idea.
And even the concept of crowdfunding is flexible enough to accommodate more than one method, as crowdfunded contributions can take the form of both equity-based and peer-to-peer lending.
However, note that many of the financing options mentioned so far are primarily relevant to e-commerce business owners who are still in the process of translating an idea into reality.
Where does this leave the entrepreneur who has already gotten an e-commerce business off the ground, but still has ongoing financial needs that are not always easy to meet, particularly in the area of inventory?
The Ins and Outs of Inventory Financing
One advantage of finding your groove as an e-commerce business owner is the existence of additional financing options that become more and more feasible as you accumulate a base of customers and connect them with the products they love.
Consider an approach that is variously called invoice financing, invoice factoring, or accounts-receivable financing. It is a method that can perhaps be explained by way of example. Imagine an entrepreneur who is in the business of selling coffee mugs adorned with creative labels or designs. There is no brick-and-mortar location; the owner operates entirely from the convenience of her laptop.
The business is already up and running, with a growing number of new customers, many of whom have the potential to become repeat customers. However, the owner does not have the technical ability to make the coffee mugs herself.
This necessitates the involvement of a manufacturer or vendor from whom the physical product is obtained. And this, in turn, requires her to have the cashflow necessary to pay the manufacturer and keep the product line flowing.
Now, imagine that the business owner is successful enough that her customers want to buy $1,000 worth of mugs in a week. The orders have not been fulfilled, but she has the invoices on hand.
Through invoice financing, she can obtain an advance from a third-party financing company — that is, an amount that is borrowed against the amount of the invoices. By presenting the third-party financier with the invoices, she provides proof that she is owed the amount of money against which she is borrowing.
The business owner can then use the $1,000 loan to pay the manufacturer for new or additional inventory to ensure that all advertised products are in stock so that all orders can be filled. The $1,000 is repaid after the sales are processed and the products are delivered.
A similar process is available to business owners who already have the inventory on hand. In this model, known as asset-based financing or simply inventory financing, the inventory itself serves as the collateral for the advance. If the business owner is struggling to keep certain products in stock, a loan obtained against existing assets can enable the purchase of additional inventory.
Keep in mind that inventory financing is likely going to be a more attractive option for business owners whose operation is larger than the entrepreneur from our example, though she could conceivably benefit from either approach. Under both forms of financing, the third-party company generally handles any necessary contracts or inter-creditor agreements.
However, another thing to remember is that third-party companies who handle this type of financing may have requirements that must be met before any funds can be advanced. For example, the e-commerce business owner may be obligated to prove a certain amount of creditworthiness.
Unlock the Benefits
Invoice- or asset-based financing can make life easier for an e-commerce business owner by easing immediate demands on cashflow. The entrepreneur who is less concerned with immediate inventory-related costs has more money to invest in other areas of the business. These include the development of new products, marketing initiatives, and other brand- and profit-boosting activities.
Furthermore, this type of inventory financing tends to be faster than obtaining a loan or line of credit from a traditional financial institution. This is because the companies that help business owners finance inventory exist for precisely that reason — to help business owners. Like the e-commerce entrepreneur, these companies thrive on the efficiency of the online world.
Similarly unlike a traditional financial institution, the right partner can also help with shipping, delivery, and other logistical concerns, freeing you to focus on less headache-inducing areas of business ownership — that is, the things you were excited about doing in the first place.
These benefits also confer a deeper, less tangible benefit: the business owner’s ability to worry less about the immediate future. In business as in life, psychological security is priceless.
Are you ready for the peace of mind that comes with efficient financing of your e-commerce inventory? If so, the end-to-end solution you need is never far away, and it includes not only financing, but a range of tools with which to simplify and streamline your responsibilities as a business owner.
Learn more about Ecommerce Financing, Purchase Order Financing
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